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Liberty Mutual is no longer interested in writing the most workers’ compensation policies in the nation, but is interested in writing polices that are most profitable according to its evolving business model.   

Liberty’s net written premiums for voluntary market workers’ compensation policies have steadily declined in recent years. The 2011 number was at $3.58 billion, 2012 at $3.33 billion, 2013 at $2.25 billion, and 2014 at $2.15 billion. 

Last March, Business Insurance Magazine quoted Paul Condrin, the president of Liberty Mutual’s commercial insurance strategic business unit, as stating in an email, “Over the past several years, Liberty has strategically reduced its exposure to workers compensation by targeting underperforming accounts that were contributing to unacceptable results.”  Therefore, Liberty is focusing on accounts that perform, and often writing workers’ compensation insurance with a bundle of other more profitable insurance products on those accounts, such as commercial auto coverage.   The feeling is employers are inclined to stick with Liberty for a longer period if they have several policies with the insurer.   

One expert was said by Business Insurance to have raised the question as to whether Liberty planned to get out of the workers’ comp market all together.  But this speculation within these past 90 days remains to be seen.

Liberty Mutual’s overall profits as a company have grown dramatically since it began reducing its underperforming workers’ compensation accounts.  In 2011, Liberty earned $284 million.  In 2012, it earned $829 million and then in 2013 $1.7 billion.  Last year in 2014 the company earned $1.8 billion.  These numbers are all according to the company’s annual reports.

In 2012, Liberty sold its workers’ compensation business in Argentina.  Last year, it sold Summit Holdings Southeast Inc., which was solely a workers’ compensation subsidiary.  A few months later, the company announced it would pay Berkshire Hathaway $3 billion to take over some of its workers’ compensation claims along with liability tied to asbestos and environmental policies.

These transactions freed up Liberty Mutual to spend more money on other projects and investments, rather than have to set money aside in reserves for workers’ compensation claims.

According to the San Francisco Business Times last Monday, Mark Dwelle, an analyst with RBC Capital Markets in Virginia, stated, “Workers’ comp is not a line that historically produced good returns and because of the longer term nature of some of the claims payouts, it ties up capital for a long period.  Exiting comp frees up capital to write other business that may be even better.” 

Rising medical costs are now affecting the workers’ compensation market. According to the United States Labor Department, medical costs have risen 12 percent since 2011 nationally, more than double the overall rate of inflation during this period.   Medical expenses make up approximately one-half of workers’ compensation pay-outs.

However, some analysts are saying that some insurers remain optimistic about workers’ compensation.  Recent state rate increases plus more sophisticated data and technology controls over medical expenses, especially, provide potential for increased profits.

The Travelers has increased its share of the work comp market and has surpassed Liberty Mutual.  Travelers was the largest workers’ compensation insurer in the nation in 2014 while Liberty was the fourth.  Liberty had been the largest in 2012 including the previous four years.

Based in Boston, Liberty Mutual, first known as the Massachusetts Employees Insurance Association, started a hundred years ago insuring railway, shipbuilding, and tannery workers hurt on the job.  But for the last 30 years, Liberty has become more than just a workers’ compensation insurer.  Through several acquisitions, it has built an auto and home insurance business.   It is now the nation’s second-largest home, auto, and business insurer behind State Farm Insurance based in Illinois. Liberty has also expanded into Spain, South America, and Russia.

lonce@adjustercom.com; Lonce LaMon, journalist; copyright adjustercom and Lonce LaMon; all rights reserved