According to Liberty Mutual Chairman and CEO Tim Sweeney, the property and casualty insurance industry has not historically been a hotbed of innovation. But to Sweeney, it should be an existential priority for insurers. McKinsey Senior Partner Tanguy Catlin sat down with Sweeney, at ITC Vegas to understand why innovation is a priority, the pillars of the company’s culture of innovation, and how it’s approaching and implementing AI.
This interview has been edited for length and clarity.
Tanguy Catlin: You’ve talked about how innovation is a personal priority for you. Why is it so critical for the insurance industry?
Tim Sweeney: Past is not prologue in our business. As we look forward, the nature of risk is changing quite dramatically. Innovation, then, is not a nice to have; it’s an existential priority.
It is a privilege to get to lead Liberty Mutual now, as we sit at the intersection of so many societal challenges that need to be addressed collectively, whether it’s climate change, gen AI, geopolitics, or the future of mobility—including electric vehicles, autonomous vehicles, and subscription services. With AI, there’s been a recent flurry of activity as these companies realize they need insurance and try to determine what’s insurable. All of these elements are leading to either heightened or evolving risk. And the role of insurance is to protect against and mitigate risk.
Our mission is to help people embrace today and confidently pursue tomorrow. Without insurance, that is impossible—people wouldn’t drive cars, buy homes, or start a business. To continue to achieve this mission, we have to evolve. We have to make sure we’re addressing emerging, unmet needs and not just meeting the moment but meeting the future.
Tanguy Catlin: You’ve spent a lot of time creating a culture and system of innovation at Liberty Mutual. What are the key pillars you’ve established?
Tim Sweeney: We started as a workers’ compensation company, so we used to have a lab focused on workplace safety. And we, along with Cornell University, invented the seatbelt about 70 years ago. Innovation has always been in our DNA.
About ten years ago, I formed an innovation lab at Liberty Mutual called Solaria Labs, where we work to create new products based on emerging customer needs. This incubator works closely with our technology organization because many of the innovations are either driven by or inclusive of new technologies. We also have a rotational program in which employees from across the business spend three months in the lab and then cross-pollinate their learnings back to their part of the organization.
But innovation doesn’t just happen within the walls of Liberty Mutual. We have to source the best ideas, wherever they are. We’ve established external listening posts so that we’re in the flow of the best ideas.
The first is Liberty Mutual Strategic Ventures, which invests in early-stage insurtechs and other companies that are adjacent to us and are delivering our products, solutions, and services to customers. It sits in the business close to our decision-makers, not in our investment portfolio, and focuses on learning from and partnering with folks who are driving innovation.
The second is our asset side of the business, Liberty Mutual Investments. We have an energy and infrastructure fund within our Liberty Mutual asset portfolio, which invests in things such as geothermal plants and AI and includes a venture capital group that sees hundreds of companies a year, some of which are going to be of interest to us for innovating within Liberty Mutual.
The third listening post is partnerships. We’ve partnered with MIT for five or six years, funding $25 million to collaborate on research—research that has identified solutions for our customers, primarily around climate, mobility, and AI.
The final innovation pillar is probably the most important one, wrapping around all of this: a top-down culture of innovation. We project a willingness to fail and celebrate the learnings of failures so we can move on to the next innovative idea. We work to expose all our people to what we’re doing from an innovation perspective through demonstration days, the rotations I mentioned, and an annual innovation challenge. All of this compounds to create a culture in which every employee across the company knows they’re empowered to come up with new ideas. I’m proud to say we’ve made Fortune magazine’s list of most innovative companies three years in a row, and Fast Company just named us one of the best workplaces for innovators.
When making budget cuts or reducing expenses, it’s easy to cut something like innovation, which has a murky ROI. So it takes intuition and conviction from the CEO and the senior-leadership team to protect innovation as the financial results of the company ebb and flow.
Tanguy Catlin: I don’t think many people understand that, as an insurance company, you can be engaged in climate-related activities from both a liability and asset standpoint. You mentioned investing in geothermal energy. Could you talk a little bit about that specific example?
Tim Sweeney: As the fifth-largest property insurance company in the world, we operate in 28 countries. The increase in severe weather, which is an effect of the changing climate, is a huge priority for us. So we offer some short-term solutions around this today—such as our weather-ready app, Liberty+, in which we notify people when storms are coming and help them fortify their homes in advance.
Longer term, we help with sources of clean energy to bend the curve of the severe-weather trends we’re seeing. And we come at this from both an insurance and investment side. With geothermal energy, in the US mountain states, we insure a geothermal drilling facility; they could not construct and operate it without the insurance that we provide. We’re also an investor in this facility.
Tanguy Catlin: Given your focus on innovation, I’m curious about your view on gen AI and agentic AI. Do you think they’re going to be transformative for the industry, and what are you doing about it?
Tim Sweeney: With any technology innovation, the impact is always overestimated in the short term and underestimated in the long term. In the long term, I think this is a game changer for us and most industries. But for large, complex organizations that have grown through acquisition and have legacy technology, such as Liberty Mutual, three swim lanes need to come together to transform the company with the new technology.
With AI, the first is to modernize the mainframe and get everything to the cloud. The second is to make sure the quality and structure of your data are prepared to leverage the new technology. And the third is to apply gen AI to your operations. If you race just to AI implementation, you’re not going to have the convergence that you need to realize the full value of it—and eventually you’re going to have to take a step back to take two steps forward. You have to have the discipline to do all three at once.
In terms of applying AI to operations, you have to start by getting everyone comfortable with it—tilling the soil, if you will. We have all sorts of incentives and educational programs to get our people familiar with the technology, and about 60 percent of our employees now are active users of AI.
Then, you have to apply AI to specific parts of your business—in essence, proofs of concept to get things up and running. We’ve had great success thus far in using AI to improve the efficiency and effectiveness of our underwriters. Judgment and experience are critical parts of an underwriter’s job, especially on the commercial and specialty side. But a lot of an underwriter’s job is also collecting and organizing data to then apply that judgment to; we’re seeing great success thus far in using AI to collect and organize this data—essentially serving as an underwriting assistant.
The next stage, which we’re already exploring, is agentic AI. But ultimately, to truly harness the value of AI, companies will need an orchestration layer that takes the task-based, agentic AI and transforms entire processes, such as claims.
One of our five values as a company is to make things better. Through it all, we’re asking, “How can we improve? How do we innovate and create solutions to meet not just current but future needs of our customers?” I feel so fortunate to be doing this work in such an exciting time—a time of change and risk but also opportunity.
