Liberty Mutual Insurance, once the country’s biggest provider of workers’ compensation insurance, is pulling back from the comp market, according to the article in the Boston Globe, as its profits get squeezed by increasing medical costs and changing state regulations.The Boston company, which got its start a century ago insuring railway, shipbuilding, and tannery workers hurt on the job, has slipped to No. 4 by premiums since 2012. Its annual workers’ comp premiums dropped by more than a third to $2.7 billion in 2014 from $4.2 billion three years earlier. The insurer – first known as the Massachusetts Employees’ Insurance Association – also has sold off some of its workers’ compensation subsidiaries and paid Warren Buffett’s Berkshire Hathaway Inc. to take over some of its claims.
Liberty Mutual officials said the company will remain a large player in the market, but is focusing on growing more profitable portions of its business, such as safety consulting and managing the claims and paperwork for companies that insure themselves for workers’ comp.
Liberty Mutual’s overall profits have grown since it began reducing its cutting its workers’ comp business three years ago. In 2011, the insurer earned $284 million. That rose to $829 million in 2012, $1.7 billion in 2013, and $1.8 billion last year, according to the company’s annual reports.
The company, which is owned by its policyholders, does not disclose profits for its workers’ comp business.
In 2012, Liberty Mutual sold its workers’ compensation business in Argentina. Last year, it shed Summit Holdings Southeast Inc., which was solely a workers compensation subsidiary. A few months later, Liberty Mutual announced that it would pay a Berkshire Hathaway company $3 billion to take over some of its workers’ compensation claims, along with liability tied to asbestos and environmental policies.The deal freed Liberty Mutual to spend its money on other projects and investments, instead of having to set aside money for long-term workplace injury claims.
Some insurers, however, remain optimistic about workers’ compensation, analysts said. The combination of recent state rate increases and more sophisticated data and technology to control costs, especially medical expenses, provides the potential to boost profits, they said.
The Travelers Cos. of St. Paul, Minn. has increased its share of the workers’ comp market and surpassed Liberty Mutual. Companies that were smaller players several years ago, such as Berkshire Hathaway and American Financial Group Inc. of Ohio, also have grabbed more of the market.
Liberty Mutual has tended to pay out a larger percentage of its workers’ comp premiums in claims than the industry average, leading to shrinking profits in that business. In 2012, 89 percent of workers’ comp premiums collected by Liberty Mutual were paid out to claims, compared with 68 percent industry-wide, according to the National Association of Insurance Commissioners.
Bob Hartwig, president of the Insurance Information Institute, a New York-based industry research group, said Liberty Mutual’s withdrawal from workers’ compensation hasn’t disrupted the market yet. There are still hundreds of companies that offer workers compensation insurance at competitive prices, he said. “There are always insurers changing their strategic emphasis,” Hartwig said.