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Liberty Mutual looks to unbundle insurance, claims

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Liberty Mutual Insurance Co. could soon offer insurance and claims services on an unbundled basis, allowing large policyholders more flexibility and, potentially, lower claims handling costs.

Liberty Mutual, the nation's third-largest workers comp insurer, according to National Association of Insurance Commissioners data, and the largest before its recent diversification strategy, traditionally has offered insurance and claims services on a combined basis.

However, that may soon change. “As part of our ongoing efforts to best meet the needs of large buyers and brokers, Liberty Mutual (Insurance Co.) is exploring opportunities to make our insurance paper available on an unbundled basis,” a spokesman for the Boston-based insurer said in an e-mailed statement to Business Insurance Wednesday.

The unbundled services will be available for workers comp, general liability and auto liability policyholders.

“Liberty Mutual knows how important flexibility is to large risk buyers and the brokers who serve them,” the spokesman said. “That's why we offer a range of flexible program structures, collateral requirements, service levels and our wholly-owned third-party administrator, Helmsman Management Services.”

“Liberty Mutual will continue to be a market for large multiline risk programs that combine insurance paper and service,” the spokesman added.

Unbundling essentially separates the claims handling portion of the insurance arrangement from the underwriting portion.

In most cases, an insurer will continue “to be the insurance company of record with regard to reporting data, dealing with the state, collecting certain premium fees and the like,” said Trey Gillespie, Austin, Texas-based senior workers compensation director at the Property Casualty Insurers Association of America. “The claims handling is most likely going to be handled by a third-party administrator chosen by the insured, but with the permission and consent of the insurance company.”

Other large insurers, such as American International Group Inc., Chubb Ltd. and Zurich Insurance Group Ltd. already offer services on an unbundled basis.

Insurance companies evaluate this option every so often because there's a market for it, Mr. Gillespie said, but some insurers are hesitant to move forward because they could lose control of the claims handling portion.

And in some cases, “claims handing might end up being handled by another insurance company instead of a third-party administrator,” he added.

Even employers who qualify to self-insure in some states may find unbundling packages “very attractive,” Mr. Gillespie said. It could create “more competition” among vendors bidding on their claims handling services and, “ultimately, lower the cost as a whole for their whole workers compensation package.”