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Liberty Mutual weighs unbundling

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With Liberty Mutual Insurance Co. exploring unbundling its insurance underwriting and claims services to gain new business, the insurer's policyholders may enjoy cost savings and greater flexibility while other large insurers face increased competition.

The option of unbundling would be particularly attractive for larger workers compensation buyers, experts say.

Liberty Mutual was the nation's seventh-largest workers comp insurer in 2015 with a 4.3% market share, according to the National Association of Insurance Commissioners, and was the largest prior to its recent diversification strategy. Its wholly owned Helmsman Management Services L.L.C., is the 10th largest third-party administrator, according to Business Insurance's most recent ranking. However, Liberty Mutual is the only large insurer that has not separated underwriting from claims handling, sources said.

For large risk management accounts with a “premium or loss projection of at least $3 million — certainly $5 million” — unbundling is “a fact of life,” said Joseph C. Peiser, executive vice president and head of casualty broking at Willis Towers Watson P.L.C. in New York. He added that the majority of the brokerage's large accounts are “unbundled.”

“As part of our ongoing efforts to best meet the needs of large buyers and brokers, Liberty Mutual is exploring opportunities to make our insurance paper available on an unbundled basis,” a spokesman for the Boston-based insurer said in an emailed statement to Business Insurance last month.

American International Group Inc., Chubb Ltd., The Travelers Cos. Inc. and Zurich Insurance Group Ltd. and are among large insurers that already offer unbundled services.

Taking that step now is something Liberty Mutual likely has to do “to remain competitive” and “be a factor in the large-account space,” Mr. Peiser said. “This is a very positive development and it's going to, we think, result in Liberty seeing a lot of new opportunities and writing a lot of new business.”

Liberty Mutual will continue offering services for workers comp, general liability and auto liability on a bundled basis for interested policyholders, the insurer's spokesman said.

“For the most part, clients with active risk management departments prefer unbundled programs because it gives them more control over the claims process,” Mr. Peiser said. “It also makes their programs more portable so, if they're dissatisfied with one aspect or another, they don't need to sever the entire relationship.”

Unbundling also allows employers to work with TPAs that can “demonstrate they have the technology from a data analytics perspective to really meet the needs of the client,” said Joe Vasquez, Philadelphia-based president of ESIS Inc., Chubb's wholly owned TPA. “Understanding the nuances of various jurisdictions is critical.”

While insurers evaluate unbundling periodically, some are hesitant to offer unbundled coverage because they don't want to lose control of handling claims, said Trey Gillespie, Austin, Texas-based senior workers compensation director at the Property Casualty Insurers Association of America.

Losing control of claims could have “a negative impact on their standing or reputation in the insurance community,” Mr. Gillespie said. “But when you look at the workers compensation market as a whole, it's mostly price-driven as opposed to reputation-driven.”

Both Mr. Peiser and Mike Vitulli, Boston-based vice president of insurance brokerage Risk Strategies Co. Inc., said they don't expect Helmsman to lose business if Liberty Mutual unbundles its services.

Rather, “I think it will simply be an avenue for Liberty to write more business that they would not have otherwise seen,” Mr. Peiser said.

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,” Mr. Gillespie said. “The claims handling is most likely going to be handled by a TPA chosen by the insured, but with the permission and consent of the insurance company.”

ESIS' Mr. Vasquez said “accounts that have self-insured retentions or large deductibles typically want to have that freedom of choice where they decide, one, who their carrier is and, two, who their third-party claims administrator is, as well as which vendors handle certain parts of their loss program.”

With unbundled packages, “large employers that don't have much of an appetite for assuming (the) administrative burdens” that come with self-insurance can take “more of an oversight type of position” with their insurer and TPA, Mr. Gillespie said

For employers that frequently aren't contractually allowed to self-insure, such as construction companies, staffing companies and some municipalities, “unbundling gives them the option to use any TPA they want,” said Joe Picone, Glen Allen, Virginia-based claim consulting practice leader at Willis Towers Watson.

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

“You could argue that, if you're allowed to bid the service out and find the best deal at the best price with the best service, you should be able to manage that better than just having your insurer roll it over every year,” Risk Strategies' Mr. Vitulli said.

But sources said buyers should focus more on the total cost of risk than the upfront fee per claim.

“Statistically, the cost of the fee per claim on average ends up being less than roughly 9% of your total claim cost,” Mr. Vasquez said. “Sophisticated buyers certainly understand and appreciate that” and focus on the total cost of risk.