Mutual insurance flourished, bursting into full flower on our own side of the Atlantic. Hundreds of fraternal and social groups offered a wide array of benefits on the mutual model, as did mutual corporations
chartered solely to provide different varieties of insurance. To many Americans, insurance seemed a powerful tool for addressing social inequality and
reducing the risks of an unstable and uncertain world, particularly in its mutual form. So it was unsurprising that when, in 1911, Massachusetts
pioneered workers' compensation insurance, it settled on a state-subsidized mutual company as its vehicle for the reform.
The act that chartered Liberty Mutual offers a grisly testament to the terrible costs of industrial labor. It specified the benefits to be paid by the
new insurer, or by others offering similar policies. "For the loss by severance of both hands at or above the wrist," one clause detailed, "or both feet at or above the ankle, or the loss of one hand and one foot, or
the entire and irrecoverable loss of the sight of both eyes," a worker was to receive a bonus of half a week's pay, "but not more than ten dollars nor
less than four dollars," and only for the next hundred weeks. That maximum of a thousand dollar payout for a double amputee was a huge advance, but
even then, formed a sharp contrast with executive compensation. The Industrial Accident Board, set up to oversee the system, paid its chair an annual
salary of $6,500--as much in one year as the lifetime compensation for thirteen severed hands.
It is a reminder that the mutual movement never aimed to establish perfect social justice, nor to achieve precise equality of outcome. Insurance aimed
to mitigate risk, both by providing incentives to reduce it and by taking relatively small sums from each participant and aggregating them into large
payouts for the unfortunate victims. It rounded off the jagged edges of the modern economy.
By the time Kelly arrived, in 1992, Liberty Mutual had grown a long way from these early roots, with operations in every state and around the world. It
had diversified into the
auto, fire, life, and reinsurance markets. But it was struggling to stay competitive. In 1996, Liberty led a push for legislation authorizing mutuals
to place their assets into holding companies, which could in turn sell stock. It cited better access to capital markets, easier acquisitions, and
simplified accounting. Critics envisioned executives pursuing rapid growth and commensurately rising compensation. In theory, at least, mutuals were
owned by their policyholders, to whom executives were accountable. Profits were passed on to policyholders in the form of regular dividends. The hybrid
holding-company structure muddied the waters.
Liberty was the first mutual to take advantage of the new law. It converted to a mutual holding company in 2001 over the outraged howls of watchdogs,
who believed policyholders were being shorn of ownership without sufficient compensation. Over the next decade, Liberty Mutual became wildly successful
and profitable, gobbling up smaller competitors and growing into a Fortune 100 corporation. And an increasing share of its revenues were captured by
the firm's executives, instead of being booked as profits and distributed to its policyholders. Kelly, paid roughly $3 million when he pushed through
the reorganization, took home more than $50 million in salary, incentives, and deferred compensation in 2011, his final year as CEO. Liberty Mutual
leased a fleet of five corporate jets
to fly its senior managers around in style. In 2010, it paid its top nine executives
than the Red Sox shelled out for their starting nine.