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By JACK ROBERTS, editor in chief of Risk & Insurance®, and MATTHEW BRODSKY, senior editor/Web editor

In the past Liberty Mutual had two ways to get insurance to its middle-market clients. It sold direct through its Business Markets division, or sold through its subsidiary Wausau through a distribution channel of trusted agents. On Jan. 22, the Boston-based carrier announced all that would change. The Wausau brand was being retired; no longer would Liberty Mutual sell direct to the middle market; a new division called Liberty Mutual Middle Market is to now sell exclusively through agents and brokers.

The three brokerages--USI Holdings Corp., Arthur J. Gallagher and HUB International--won renewal rights that appear to have been coveted by some, disregarded by others. Bob Rusbuldt, president and CEO of trade group Independent Insurance Agents & Brokers of America (aka, the Big I), reported he received calls from members asking how they could acquire the business rights, callers which he of course redirected to Liberty Mutual.

"We talked to many more than just the three," said Mark Butler, who is heading up the new Liberty Mutual Middle Market unit. "The characteristics of the three, when the dust settled, it all boiled down to their operational excellence in the middle market space, similar cultures." Similar cultures, he explained, so that employees making the move with the accounts would be in a good spot.

Industry sources say that both Aon and Marsh looked at buying the renewal business but both passed on the deal.

"It wasn't the kind of business that would have fit well with our organization, especially our middle market and small commercial business," said an executive at a broker that looked at the deal.

The deal hinged on hiring the existing Wausau producers, which "just didn't fit with our business strategy," he said.

THE THREE BROKERAGE WINNERS

Gallagher, in acquiring all the renewal rights for Liberty Mutual's middle market P/C business in the Midwest and Southeast regions, most likely will hire about 75 of the Liberty Mutual producers. It also acquired nearly all of the renewal rights from Wausau Signature Agency, along with that firm's national producer group. (It paid initially $44 million for these rights, and will continue to pay for the next two years based on revenues, up to $120 million).

USI is picking up as many as 76 Liberty Mutual employees--44 of them producers--as it acquires Liberty Mutual's middle market P/C renewal rights in the Northeast region.

"We're absolutely thrilled," said USI Senior Vice President Edward J. Bowler about picking up the producers. "This is a big deal for us."

Quite so. With about 500 producers nationwide, USI stands to increase its sales force by nearly 10 percent.

Though not able to disclose the payment price, Bowler added, "The Northeast region fits in like a glove with our regional footprint."

HUB President Richard A. Gulliver stated that it is taking in about 80 Liberty employees and nearly $350 million in premium--all integrated into four of the firm's existing hubs. Gulliver was not able to provide a purchase price either.

No matter the price, with new employees and new renewal rights, the three firms seem to be winners. Perhaps the biggest advantages of having the renewal rights is that the three brokerages will now know the insureds and when their policies are up for renewal. Unless the policyholder has had a bad experience with Liberty during the last year, the odds are hugely in favor of them renewing through the broker.

"It's still a competitive situation," said Liberty Mutual spokesperson Richard Angevine, with renewal business being open to other markets, and of course other agents or brokers if a client so chooses to walk away.

INDEPENDENT AGENTS WIN

For writing new Liberty Mutual business, though, the new landscape is bright for other brokers and agents.

"It's nothing but good news," said the Big I's Rusbuldt, adding that there are no losers from an independent broker and agent perspective.

"Independent agents are always looking for good stable partners," he said. "They are a very important partner for independent agents and brokers."

And it appears agents will not be losing out with the disappearance of Wausau, which had only been good for some agencies, according to Rusbuldt. The Midwestern insurer had not really been looking to appoint new agencies.

Now, former Wausau agents can do business with Liberty Mutual Middle Market. And interested new agencies and brokers can get into the distribution act too. Butler, whose official title is chief operating officer, said that the division will be actively trying to grow its distribution network in the next six to 12 months.

The carrier appears of course to build on relationships it already has as well.

"I think they'll be looking toward a number of agencies that they already work with with their current independent agency companies," said Rusbuldt.

By giving itself over to the way of the broker/agent, Liberty Mutual is listening to 95 percent of middle market insurance buyers, who say that they want to buy through an intermediary.

Angevine said that brokers and buyers have been telling the company that they want the Liberty Mutual brand but want to keep their agents/brokers too.

This move makes Liberty Mutual now one of the largest independent agency companies in the country--with the likes of Safeco, Golden Eagle, Peerless and Montgomery under its wings. For large commercial accounts, Liberty Mutual predominately goes through brokers too.

"They've staked their future with independent agents and brokers," said Rusbuldt.

BUYERS WIN TOO

The new division could also open up new capacity for middle market buyers.

"We do believe there is a great opportunity to reach new market share," said Butler. "Our expected outcome is to grow our top line as well as our bottom line."

The unit will continue to build on Wausau's strong history in the workers' comp line, but expects to grow in other primary lines--general liability, commercial auto, umbrella, property.

January 23, 2009

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