External Analysis of Liberty Mutual Insurance Group

Introduction

Liberty Mutual Insurance Group or Liberty Mutual is an American based insurance company

operating in the United States of America. It operates in various business lines which includes

the life, health, and property insurance as well as auto mobile insurance services to the wide

range of customers. According to the largest company’s rankings in United States, it is ranked at

number five in its business line in United States. The company is currently ranked at number

seventy one in the Fortune 500 companies list (Fortune, 2010).

Liberty Mutual Insurance Group has received very favorable and positive rankings from the

renowned credit rating firms like A. M Best Co, Moody’s and Standard &Poor’s respectively

(Liberty Mutual Insurance Group, 2011). It has earned around nine billion US dollars revenue for

the year 2010 from its business and brand portfolio and the total assets of the company as of

December 2010 were one hundred and thirteen billion US dollars (Liberty Mutual Insurance

Group, 2011).

SWOT Analysis

SWOT Matrix

Strengths

Market position

Brand portfolio

Strong networks

Weaknesses

Employee issues

Lack of focus

Online presence

Opportunities Threats

Expansion

Acquisitions

Online presence

Domestic shift

Competition

US regulations

Economic conditions

Strengths

Liberty Mutual Insurance Group has received very favorable and positive rankings from the

renowned credit rating firms like A. M Best Co, Moody’s and Standard & Poor’s respectively

(Liberty Mutual Insurance Group, 2011). It has earned around nine billion US dollars revenue for

the year 2010 from its business and brand portfolio and the total assets of the company as of

December 2010 were one hundred and thirteen billion US dollars (Liberty Mutual Insurance

Group, 2011).

The company is currently ranked at number seventy one in the Fortune 500 companies list

(Fortune, 2010). It caters the need of wide range of customers around the globe. The main

services it offers to customers include the insurance of life, health, property, and automobiles

respectively. It also offers financial services to its clients (Liberty Mutual Insurance Group,

2011). The company has nationwide and international presence in various countries like UK etc.

through the network of around nine hundred offices it effectively maintains its business

operations and functions (Liberty Mutual Insurance Group Fact Sheet, 2011).

Weaknesses

Despite of the fact that Liberty Mutual Insurance Group is among the largest insurers in

the United States, it too lag at some grounds. Among these grounds are the employee relations

related issues. There are various instances related to the company’s failure to offer competitive

salaries to their employees resulting in the legal suits and increased turnover rate in the company.

Recently one of the disabled old workers in the Liberty Mutual Insurance Group has filed suit

against the company for denial in the coverage of disability of the worker. The company failed to

meet its promises it committed at the time of hiring its employees (Whitehead, 2011).

Another weakness of the company is the failure to comply with the latest trends in the

industry. The company has very little online presence which can directly impact its business

operations in the form of low level of customer orientation towards the company.

Likewise, the company has very limited focus in terms of its products and services. It can

cater the needs of the retired people, accidents, severe illness and children education plans etc.

these services, if offered, will give the Liberty Mutual Insurance Group a competitive advantage

over its counterparts in the markets.

Opportunities

There are large numbers of opportunities available to Liberty Mutual Insurance Group.

Among the available opportunities is the geographical expansion. It has no geographic presence

in the countries that offer great growth opportunities to the companies operating there. It can

expand its business portfolio in the emerging markets of Asia like China and India. These

countries promise growth opportunities in the form of increased profits and market share.

Another opportunity available to Liberty Mutual Insurance Group is to engage in the

business mergers or acquisitions activities. These activities can give a competitive edge to the

company over its competitors in the markets. The company has recently acquired Safeco

Corporation for around seven billion US dollars. This acquisition is regarded as the strategic

success of the company in the domestic markets (Allison, 2008).

As already mentioned in the weaknesses, Liberty Mutual Insurance Grouphas very little

online presence. It can improve its online presence by offering online services to its customer

base in the national as well as international markets. This will increase its market presence to

many folds and the company will also be able to face the stiff competition given by its

counterparts.

Likewise, the demographic structure of United States of America represents the favorable

structure for New York Life Insurance Company. According to the CIA world fact book (2010),

there is large number of baby boomers in the US population (age range 60 and over: 20%). Most

of these people have reached old age and are retired from their life-long work related duties. This

market segment offers the room of opportunities to Liberty Mutual Insurance Groupin the form

of retirement and pension plans and offerings.

Threats

The insurance markets in United States are highly competitive in nature with a large

number of market players offering wide range of products to the nation. Liberty Mutual

Insurance faces stiff competition with these players. The top three competitors of Liberty Mutual

Insurance Group are The Allstate Corporation, State Farm Mutual Automobile Insurance

Company and The Travelers Companies, Inc.respectively (Hoovers, 2011).

Another level of threat to the company is the economic recession in the United States.

The downfall in the US economy has touched all the levels of business and lives of people. It has

severely affected the companies operating in the domestic markets and the demand of the

customers. The demand is dependent on the demographics of the customers and the commercial

requirements that affect their needs. The consumers are required to buy auto insurance and rental

insurance by the government and lenders. If these economic conditions continued to prevail, then

Liberty Mutual Group will likely to suffer huge losses in the coming years (Liberty Insurance,

2011).

Another possible threat faced by Liberty Mutual Insurance Group is the changing

regulations by the US government for auto markets. The government of United States has

mandated insurance of vehicles and drivers. The recent regulations involve the auto insurance

based on the safety records of driver, the mileage driven and the experience of driver in driving

respectively (Car Insurance rates, 2011).

PESTEL Analysis

Political

Liberty Mutual Insurance Group strives to demonstrate its commitment to the public by

making sure that it is able to add its voice at the time of devising public policies. Through its

political action committee, Liberty Mutual Insurance Group has spent and raised over one

million US dollars in the year 2010 for making political contributions to the wide range of

national and state level parties (open secrets org, 2011). The political action committee of the

company has spent over three hundred thousand US dollars for the year 2010 in the favor of

Republican Party (open secrets org, 2011).

They have also hired various agents for the lobbying activities in the markets to obtain

favorable remarks. Currently three main agencies are involved in these activities on the behalf of

the company: Akin, Gump et al,Public Strategies Washingtonand Price Waterhouse Coopers

(Influence Explorer, 2010). The company through its agents has spent over three million US

dollars in the lobbying activities (Follow The Money Org, 2011).

Economic

The economic conditions of a country play an important role on determining the success

and failure of a company. Since, most of the functions of Liberty Mutual Insurance Group are

directed in the domestic markets of United States, so its likelihood of getting hit by the

economic changes and governmental ruling is high. The downfall in the economy of United

States has adversely affected large number of organizations operating in United States and

increased the opportunity costs associated with their business segments and operations.

Moreover, these declining market conditions have increased the unemployment rate in the

company. According to the CEO of Aetna Inc. the government is been trying to raise the level

of employment in the country but this has no significant or direct impact on the health care

industry. The economic conditions of the country still seem to be troublesome for large number

of companies (Sturdevant, 2011).

Social

Liberty Mutual Insurance Groupis effectively engaged in the social and community

related activities in order to raise the living standards of people in the communities it operates in.

The company believes it is very important for the success of the company, its employees and

policy makers to understand the needs and requirements of the communities they operates in. the

company follows diverse culture all over its business units (Liberty Mutual Insurance Group,

2011).

In order to achieve the community involvement, Liberty Mutual Insurance Group has

established Liberty Mutual Foundation to serve the needs of people from these communities in

2003. The foundations raise and donate grants to the people. They cater the educational needs of

low income groups- children, take part in strengthening cultures. The major objectives of this

foundation are to educate the children and facilitate the health services for the people living in

these communities.They help these people by volunteering time, financial resources and offering

social help to them (Liberty Mutual Insurance Group, 2011).

Technological

According to the news communicated by Boston Redevelopment Authority (2011)

Liberty Mutual Insurance Group has established its large numbers of information technology

centers in the Boston and other operative areas. These centers help the company to improve their

customer’s services and relationships further strengthening its market position.

Environmental

Like the other entire responsible corporations in the markets, Liberty Mutual Insurance

Group is also engaged in the activities that foster the environmental safety. It has started number

of activities in order to minimize its impact on the environment and atmosphere. Among its

initiatives includes reduced energy use, recycling of paper, saving water at its facilities and

improving the current practices of doing business in the organization.

The Green Practices at Liberty Mutual Insurance group includes the following (Liberty

Mutual Insurance Group, 2011): white roof to reflect the heat in order to reduce the energy

consumption for cooling the premises, under floor air distribution system to push the air upward,

windows installation in the offices and workstations to bring the daylight inside the buildings,

recycling of materials, and effective drainage system for natural disasters like storm to protect

the nearby rivers and landscapes respectively (Liberty Mutual Insurance Group, 2011).

Legal

Many insurance companies are in a practice to save their money by delaying the

settlement funds asked by the customers as long as they can. This strategy allows them to make

and save money. They make the investigations extremely very costly for the individual clients

that it makes difficult for them to afford the investigations. Liberty Mutual Insurance Group is

the recipient of various legal rules, regulations and implications due to the nature of its business.

In order to maintain its market position and its license to operate in the markets of United States,

Liberty Mutual Insurance Group has to comply with the local, regional, state and federal level

rules, regulations and laws.

Porter’s Five Forces Analysis

Porter’s Five Forces Analysis helps the managers to understand the market position and

the effectiveness of business strategies of a firm with reference to five micro and macro level

environments (Porter, 2008). These five forces include Competition, New Entrants, and Buyers

Power, Suppliers Power and Substitute Products and/or services respectively. The Five Forces

Analysis for WellPoint Inc. is as follows:

Rivalry among established competitions

The level of competition among the existing competitors in the industry is very stiff. The

top three competitors of Liberty Mutual Insurance Group areThe Allstate Corporation, State

Farm Mutual Automobile Insurance Company andThe Travelers Companies, Inc.respectively

(Hoovers, 2011). In the health insurance industry, the customer demands are associated with the

increasing costs of medical options available to them. The market success and profitability of the

firms operating in the industry is dependent on their operations and their ability to obtain

favorable contracts with the medical and health care personnel (Hoovers, 2011).

Bargaining power of suppliers

The bargaining power of suppliers is derived by their power to demand the prices of their

own choice. The supplier’s power in the insurance industry is not a big threat to the companies

operating in it. But the threat suppliers taking away human capital does exist in the industry. This

industry is entirely based on the human capital.

The bargaining power of buyers

The individual buyers do not have much power to influence the insurance industry at

large. The large corporate clients and other related businesses pay large sums of money as health

insurance premium to these companies. These market players in the insurance industry long to

get high margin corporate clients.

The threat of substitute products or services

The threat of substitutes is very high in the insurance industry as there are plenty of

substitutes available in the market. Many of the firms offer the services that are similar to that of

large companies. There exists high level of competition on all the grounds whether it is auto

insurance or health insurance. There are companies operating in the markets that offers unique

products and services to their customers and have competitive advantage over their counterparts

which depends on the size of their business segments.

The threat of the entry of new competitors

The industry imposes certain barriers to the entry of the new companies in the markets. This

means that the level of threat of new entrants is relatively low in the industry. There are varying

reasons to the low rate of entry. Among them is the entry barriers imposed by the industry. The

new entrants will have to comply with the governmental regulations in order to make their entry

in the markets. Then the existing players are protected by the number of barriers which makes it

difficult for the new entrants to give hard time to them. Among them are: entry restrictions, tariff

rates, high capital requirement, distribution channels etc. These barriers limit them to compete

against the existing market players.

Recommendations

This study provided brief overview on the external environment analysis of Liberty

Mutual Insurance Group. The findings of the study suggested that Liberty Mutual Group should

focus on the following factors in order to excel its business and social image in the world:

1. Business portfolio expansion in the global markets especially emerging markets of Asia

will be highly beneficial for the company

2. Innovation is regarded as a key factor behind the success of large numbers of

organizations. Liberty Mutual Insurance Group can also innovate its products and

services in order to attract large number of potential customers

3. Offer services related to children education, health plans etc.

4. Strategy based mergers and acquisitions are highly desirable for the company.

5. Tap the current untapped domestic markets.

References

Allison, M., (2008) Liberty Mutual buys Safeco insurance company for $6.2B, retrieved on July 18, 2011 from http://seattletimes.nwsource.com/html/localnews/2004369892_safeco24.html

Boston Redevelopment Authority (2011) Liberty Mutual Insurance Group adding information development centers in Boston and adding 100 new jobs, retrieved on July 18, 2011 from http://www.bostonredevelopmentauthoritynews.org/2011/03/03/liberty-mutual-group-creating-information-technology-development-center-in-boston-and-adding-100-new-full-time-jobs/

Car Insurance Rates (2011) Mandatory Car Insurance Laws - Fines and Penalties for Not Insuring Your Auto?, retrieved on July18, 2011 from http://www.carinsurancerates.com/news/62-mandatory-insurance-laws-are-they-fair.html

Conz, N. (2010) Liberty Mutual Group SVP Discusses the Internal Cloud, retrieved on July 18, 2011 from http://www.insurancetech.com/architecture-infrastructure/showArticle.jhtml?articleID=225800130

Follow the money org (2011) Liberty Mutual Insurance, retrieved on July 18, 2011 from http://www.followthemoney.org/database/topcontributor.phtml?u=1540&y=0&PHPSESSID=dae8d6deade81d431f01dab0de1bd0f5

Fortune (2011) Liberty Mutual Insurance Company, retrieved on July 15, 2011 from http://money.cnn.com/magazines/fortune/fortune500/2010/snapshots/10009.html

Hoovers (2011) Competitive Landscape, retrieved on July 15, 2011 from http://www.hoovers.com/company/Liberty_Mutual_Holding_Company_Inc/cftxif-1-1njea3.html

Influence Explorer (2010) Lobbying 2009-2010, retrieved on July 18, 2011 from http://influenceexplorer.com/organization/liberty-mutual-insurance/dec3c55476964ff489162ea98697aecb?cycle=2010

Liberty Mutual Insurance Group (2011) About Us, retrieved on July 18, 2011 from http://www.libertymutualgroup.com/omapps/ContentServer?pagename=LMGroup/Views/LMG&ft=2&fid=1210356374865

(2011) Fact Sheet, retrieved on July 18, 2011 from http://www.libertymutualgroup.com/omapps/ContentServer?c=cms_document&pagename=LMGInvestorRelations%2Fcms_document%2FShowDoc&cid=1239999396603

(2011) Financial Ratings, retrieved on July 18, 2011 from http://www.libertymutualgroup.com/omapps/ContentServer?pagename=LMGroup/Views/LMG&ft=3&fid=1138356793862&ln=en

(2011) Financial Reports, retrieved on July 18, 2011 from http://www.libertymutualgroup.com/omapps/ContentServer?pagename=LMGroup/Views/LMG&ft=5&fid=1240002929577&ln=en

(2011) Green Practices, retrieved on July 18, 2011 from http://www.libertymutualgroup.com/omapps/ContentServer?pagename=LMGroup/Views/LMG&ft=4&fid=1138356784591&ln=en

(2011) Liberty Mutual Foundation, retrieved on July 18, 2011 from http://www.libertymutualgroup.com/omapps/ContentServer?pagename=LMGroup/Views/LMG&ft=4&fid=1239994424385&ln=en

(2011) Philanthropy and Community Involvement, retrieved on July 18, 2011 from http://www.libertymutualgroup.com/omapps/ContentServer?pagename=LMGroup/Views/LMG&ft=2&fid=1239994356771&ln=en

Open Secrets Org (2011) Liberty Mutual Insurance, retrieved on July 18, 2011 from http://www.opensecrets.org/pacs/lookup2.php?strID=C00171843&cycle=2010

Porter, M. E., (2008) The Five Competitive Forces that Shape Strategy, Harvard Business Review, p.86-104, retrieved on July 15, 2011 from http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1

Sturdevant, M. (2011) Aetna CEO: Drop In Jobless Rate Hasn't Boosted Health-Plan Enrollment, retrieved on July 18, 2011 from http://articles.courant.com/2011-03-08/business/hc-aetna-bertolini-unemployment-20110308_1_unemployment-rate-annual-health-care-conference-group-growth

Whitehead, M., (2011) Suit Filed Against Liberty Mutual – Long Term Disability Denial, retrieved on July 18, 2011 from http://www.disabilitydenials.com/blog/125