Expanding regional reach

Liberty Mutual integrates Ohio Casualty; next up: Safeco

By Elisabeth Boone, CPCU

When choosing carriers, independent agents and brokers consider a number of criteria: reputation, financial strength, product portfolio, technology platform, loss control and claims handling, and the quality of field support. In evaluating these factors, agents often ask the $64,000 question: “Should I go with big national insurers or smaller regional companies?”

For agents who represent carriers in the Liberty Mutual Group, the answer is simple: Both.

Since 1999, Liberty Mutual has been building a national network of regional carriers known as Liberty Mutual Agency Markets (LMAM). (See “The Best of Both Worlds” in the March 2007 issue of Rough Notes and “National Power, Local Markets” in the September 2004 issue.)

Until last year, Liberty Mutual Agency Markets comprised companies that traditionally had a distinct regional focus, such as Peerless Insurance in the Northeast and Colorado Casualty in the mountain region.

In 2007, Liberty Mutual took a different tack when it acquired the Ohio Casualty Group (see “Joining Forces” in the June 2007 issue of Rough Notes). Doing business in 48 states, Ohio Casualty Group was a major national player that ranked among the top 50 property/casualty insurers in the country.

In April of this year, Liberty Mutual continued this trend when it announced an agreement to acquire Safeco Corporation, parent of the Safeco Insurance Companies and the American States Insurance Companies. (See “Teaming Up” in the June 2008 issue of Rough Notes.) Like Ohio Casualty Group, Safeco is a national carrier that writes both personal and commercial lines.

With anticipated completion in the third quarter of this year, the acquisition of Safeco will make Liberty Mutual Agency Markets the largest property/casualty insurer with independent agent distribution in the United States. Pro forma revenue will be approximately $12 billion, and the combined organization will be represented by about 15,000 agencies nationwide.

Coming together

Whether the integration of Ohio Casualty Group will serve as a model for the positioning of Safeco within Liberty Mutual Agency Markets remains to be seen, Agency Markets President Gary Gregg told Rough Notes. “Every transaction is unique and must be evaluated and implemented differently,” he said.

That having been said, the process of making Ohio Casualty a regional insurer, operating in a new seven-state Midwest and Atlantic territory, required a high degree of discipline, commitment, and compromise on the part of both organizations, according to Gary Gregg and Mike Winner, who is president and chief executive officer of Ohio Casualty.

“I don’t know that Ohio Casualty was looking for a partner when we approached them, but they quickly saw the wisdom of it,” Gregg says. “What attracted us to Ohio Casualty was that it’s a great brand with a strong presence in the Midwest and Atlantic states and a terrific group of people.”

Acknowledging that his company wasn’t necessarily seeking to be acquired, Winner says, “As the initial discussions proceeded, one of the things that really impressed us as an organization was Liberty Mutual’s commitment to the independent agency channel. The way they operate with a regional structure was consistent with the way we operated: committed to agency relationships with local decision making.

“As we started to look further at the idea, we saw some important synergies,” Winner continues. “As Ohio Casualty Group, one of our challenges was that we didn’t have a lot of deep relationships with larger agencies. We had very good relationships, but a lot of the agencies were small. Becoming part of Liberty Mutual Agency Markets gave us the opportunity to immediately deepen and expand our agency plant, gain the benefit of an enhanced personal lines processing system and expanded commercial lines offerings, and work with a field sales organization that had shown a strong ability to grow premiums,” he explains.

“All of these factors, as well as joining an organization that clearly had the momentum from a marketing perspective, were very attractive to us and were things we thought we could leverage from a synergy perspective,” Winner recalls.

In addition to the factors Winner identifies, Gregg says, “The ability to spread the costs of IT development across a larger organization has certainly helped us. We’re also benefiting from the ability to draw on another great pool of talent to fill positions across the country with people who have the desire to move ahead. That’s been a big win for both sides.”

Getting there

When two organizations join forces, even in an amicable transaction, they face the challenge not only of combining operations but also of blending their respective cultures.

“Early in the process, the two teams talked a lot about the go-forward strategy and how to put this together well,”

Gregg remembers. “We had strategic discussions early on and, as we started to clarify where we were going, we created specific teams across personal and commercial underwriting and surety, marketing and distribution, claims, IT—all the major operational areas,” he explains.

“By the time we got to closing, we had detailed plans and a very clear idea of where we were going. That represented agreement among senior management from the two companies,” he says.

“That process is something that we really believe in,” Gregg asserts. “The fit was clear, and we knew that Ohio Casualty would be a great partner. But the devil is in the details, so from my perspective, detailed planning and execution are absolutely critical.”

Following up on Gregg’s point, Winner says, “I think a perfect example of the process we went through relates not to the systems and product integration but to the combining of talents from both of our organizations. At the new Ohio Casualty, our management team is made up of individuals from the former Indiana Insurance, Peerless Insurance, and Montgomery Insurance as well as the former Ohio Casualty Group.

“We’ve integrated the management teams from all four of the companies, and because of the cultural fit of Liberty Mutual and Ohio Casualty, we were able to hit the ground running,” Winner continues. “The team hit it off and worked together well. We were all committed to one goal, which was to bring our organizations together successfully.”

A win for agents

In the process of integrating the six property/casualty underwriting companies of the Ohio Casualty Group into Liberty Mutual Agency Markets, Liberty Mutual created the “new” Ohio Casualty, which operates in Delaware, Kentucky, Maryland, Ohio, Pennsylvania, Virginia, Washington, D.C., and West Virginia.

Agents of the former Ohio Casualty Group, Winner comments, are benefiting from the Liberty Mutual transaction in several ways.

“In the seven mid-Atlantic states where we had operated prior to the transaction, we’ve deepened our penetration and our footprint,” Winner says. “We’ve picked up some significant agency relationships, and we now have large agency plants in Ohio, Pennsylvania, Maryland, and Kentucky with a lot of premium. In addition, our agents are benefiting from our expanded appetite on the commercial lines side.

“Agents now have access to commercial umbrella, expanded surety bond offerings, complete personal and commercial service center options, and field sales and underwriting support that are much closer to the marketplace,” Winner continues. “Since the transaction was completed, we have added a regional office in Lexington, Kentucky, and a new branch office in Richmond, Virginia, because one of our goals was to grow in Virginia, which we see as an underserved market.”

Because the new Ohio Casualty was picking up business from the Agency Markets companies mentioned above, Winner says, “We realized we needed to develop new commercial underwriting guidelines, commission schedules, and profit-sharing structures. We needed to get all of our agents trained on the personal and commercial IT systems.

“We’ve now transitioned virtually all of our new business onto those systems,” he continues. “We’ve worked hard to maintain continuity with the existing agents in our territory and to build relationships with those we inherited as we went through the process. We were also changing relationships in terms of territory managers and field underwriters, and we did everything in our power to make those transitions seamless to our agents.”

Winner says: “We created a new Ohio Casualty brand consistent with the Agency Markets ‘world’ with Lady Liberty, and we developed a new agency portal so all of our agents have one point of access. We’ve gotten positive feedback from our agents as a result of our efforts.”

In any transaction of this size, there’s bound to be overlap in agency representation between the two organizations. “At the time we announced the transaction, our preliminary estimate was that overlap would be in the area of 15% to 20%, and that has held up,” Gregg says. “We learned a lot in that process. For example, the degree of overlap is just as important as the number of agents who overlap within any given territory. We did not have a lot of shelf space or franchise issues that agents typically talk about.”

Adds Winner, “There were some concerns early on, but as we went through the process and highlighted to our agents what we were going to be able to do, they responded favorably. When two markets combine, a major concern for agents is, ‘Do we lose something in the transition?’

“We’ve worked hard to make sure that whether it’s underwriting appetite or sales support, our agents haven’t lost anything—and in most cases they’ve gained something,” Winner asserts.

“Again, the feedback has been positive,” he continues. “Agents who had either Ohio Casualty or Liberty Mutual Agency Markets beforehand really feel that they have expanded products to offer, plus a full set of service centers that neither group of agents had before.

“We have one good, solid platform now and, from a personal lines perspective for Ohio Casualty, it’s a much better platform than we had before,” Winner says. “We also have full sales and underwriting offices that are much closer to our agents than what we had before.”

Product power

Since becoming part of Liberty Mutual Agency Markets, Ohio Casualty has launched new products in both personal and commercial lines.

In April of this year, the company introduced its CUSTOM PROTECTOR™ product for small to mid-sized businesses with receipts of up to $15 million per location.

Ohio Casualty also introduced new personal lines products in Ohio with significantly expanded price points. Policy features include diminishing deductibles for home owners and auto collision coverage to reward loss-free experience; a customer loyalty discount for long-time policyholders; new home buyer, home renovation, and nonsmoker discounts; an expanded Ultra Plus endorsement for homeowners policies, which includes identity theft coverage and enhanced replacement cost coverage; first claim forgiveness on auto policies; and a homeowners and auto package discount.

Applications, quotations, and policy issuance are handled by Personal IQ® and Commercial IQ®, the company’s Web-based interface applications.

Later this year, Ohio Casualty agents in Kentucky and Pennsylvania also will have access to Personal IQ and the new personal lines products.

Commenting on these new offerings, Winner says, “With Custom Protector, we’re providing more building coverage; we’ve significantly expanded eligibility and are offering optional market segment endorsements to a broader range of industry groups. Custom Protector fits between the true package policy and the BOP: It’s easier to write than the package and yet provides more coverage than the typical BOP. We’re seeing good receptivity from the market so far.”

On the personal lines side, Winner observes, “Our new auto policy contains features like claim-free and customer loyalty discounts as well as expanded price points to help us better match price with risk appetite as we go forward, and give our agents the ability to write a larger percentage of the marketplace. Early results have been positive, our quote activity is up, and our hit ratios continue to be strong,” he says.

Winner also has high praise for the strong sales culture at Liberty Mutual Agency Markets. “Coming from the former Ohio Casualty Group, clearly the Agency Markets organization has a much stronger sales and marketing culture, and they were being much more successful in growing their organization and business organically.

“The first thing we did was integrate our management teams so we could gain some of that expertise and knowledge and determine how we could capitalize on it at the new Ohio Casualty,” Winner says.

As it expands its national network of regional carriers, Liberty Mutual Agency Markets is elevating the acquisition and integration of new partners to an art form. Energetic yet calm, Gary Gregg has his eye firmly fixed on his next challenge: doubling the size of Agency Markets by successfully combining it with Safeco and creating a new organization. *

For more information:
Liberty Mutual Agency Markets
Web site: www.libertymutualagencymarkets.com