Liberty Mutual’s Bold Strategic Decision Comes With a Price

When one part of a business transforms, it will often come at the cost of some other area of the business; and investments and expansion in new areas will result often in reductions in other traditional areas.

(Liberty Mutual headquarters in Boston. Photo credit: User54871.)

Recently, Liberty Mutual (Boston) announced the sale of its Liberty Life Assurance Company, which handles life insurance along with employee benefits and disability insurance, to Lincoln Financial Group (Radnor, Pa.) for $3.3 billion. With the sale, it is clear that Liberty is restructuring into two new groups—Global Retail Markets (GRM) and Global Risk Solutions (GRS). These two groups are essentially aligned respectively to personal and small commercial  lines (retail) and commercial and specialty lines (risk solutions).

When we look at a company like Liberty Mutual, on the one hand, we see the amazing advances in innovation that transforms the workforce, processes, products, services, and IT. Last year presented Liberty with two SMA Innovation in Action Awards at the annual SMA Summit—one to the company’s Solaria Labs for Global Consumer Markets for the maturity and breadth of their innovation initiatives; the other to Liberty Mutual Employee Benefits for its big data initiatives. These cutting-edge technology investments and use cases have become the blueprint for others to follow. However, on the other hand, we see the reality of tough decisions that can result from pushing the envelope in some areas. The sale of the Life Assurance business is a case in point: pushing forward in some areas can mean needing to pull away others.

Terms of Success in a Time of Innovation

This development stands out to me because the Life Assurance business has offices north of Boston in my geographic area. In our small local economy, there is the potential to lose more than 600 jobs, not to mention a separate layoff/retirement in IT due to the shift in IT structure and the innovative development model. The process has already started, and there will be rippling effects across the small business ecosystem in our area. This example represents a broader reality: the overall nature of the business of insurance is shifting—in structure, focus, and development lifecycle— over to newer models.

For other insurers watching these market changes, it is an important lesson about the terms of success in a time of innovation and transformation. And while bold decisions may come with a heavy price, the consequences of not making those decisions could be even greater in the long run.

Insurers must carefully evaluate their options and decide which levers to pull—they cannot expect growth in every area of the business, neither can each business area can receive adequate funding for strategic initiatives, nor will every business area align with future market potential.

The lesson of Liberty is that when one part of a business transforms, that will often come at the cost of some other area of the business; and investments and expansion in new areas will result often in reductions in other traditional areas.

Balancing Act

Innovation and transformation require a balancing act; loss is part of any type of change, including those that are predominantly successful. The losses and cuts will inevitably happen, whether as unforeseen consequences or as what might be thought of as strategic creative destruction. They can happen any time, but are far more likely during a time of significant and rapid change. That being the case, insurers must practice sound investment strategies to minimize the impact on staff and other losses.

We will continue to watch what happens with market leaders like Liberty and see how their transformation in new areas of business impacts the other aspects of the organization. We will continue to see more and more big moves from insurers—divesting and acquiring businesses, launching greenfield ventures, and establishing new partnerships. Will these areas adapt and grow alongside? Or will cuts be the cost of expansion? Transformation may exact a painful price, but growth, and indeed survival, is seldom without pain.

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Deb Smallwood // Deb Smallwood, founder of SMA, is highly respected throughout the insurance industry for strategic thinking, thought provoking research, and advisory skills in helping insurance companies re-think, re-energize, and re-tool their IT plans and technology investments for profitable growth and differentiation. Insurers and solution providers turn to Smallwood for insight and guidance on business and IT linkage, strategy, and architecture. Those seeking an edge in today’s highly competitive world turn to Smallwood to capitalize on her deep industry knowledge and experience and her specialized understanding of distribution, portals, agent connectivity, and underwriting automation.

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