While Chubb’s $23.2 billion opening bid for The Hartford appears to be mostly a commercial lines play to many, one experienced industry observer has a different take on it.

Chubb CEO Evan Greenberg would certainly welcome what The Hartford has to offer in commercial lines, especially its $2.2 billion in small commercial lines; however, insurance industry economist Dr. Robert Hartwig thinks Greenberg has his sights set on The Hartford’s personal lines business and on challenging the current personal auto market leaders.

The Hartford, which has confirmed receiving the unsolicited, non-binding proposal from Chubb, writes abut $3 billion in personal lines: about $2 billion in auto and more than $900 million in homeowners. Much of its personal lines business comes from an exclusive licensing agreement with the American Association of Retired Persons (AARP), which has been extended through 2032. It also sells group benefits and other products.

Just as the Chubb merger with Ace a few years ago has had a material effect on commercial lines markets, so too would this deal impact personal lines, in the view of the University of South Carolina professor. Hartwig thinks the proposed deal could trigger other mergers in the personal lines market.

Hartwig, an economist, headed the industry’s Insurance Information Institute for 18 years until 2016, when he joined the South Carolina faculty as clinical associate professor of Risk Management, Insurance and Finance in the Darla Moore School of Business and director of the school’s Center for Risk and Uncertainty Management.

The professor understands that many people may not see it the way he does because Chubb is predominantly a commercial lines carrier. He agrees there would be material effects on the commercial lines side, with Chubb being able to expand into the small and middle market commercial space, and “that is important and notable.” There would also be synergies and savings to be had there.

Hartwig contends that while the lure of the personal lines business may be less obvious and understated, it is more important and compelling in both the immediate and longer term.

He described the Chubb proposal as a chess game by CEO Greenberg, with the commercial lines business being the initial move of the pawn in a strategy that anticipates capturing the personal lines business “a couple of moves down the chess board.”

If the acquisition comes to be, it is going to “set in motion reverberations” that could “shake up the personal lines space,” according to Hartwig.

Here is why Hartwig thinks the personal lines business is key.

Personal Lines Move

From an exposure side, the deal makes sense for Chubb as a balancing act by a largely commercial lines company. Chubb is a leader in the high net worth personal lines market, but not in the personal lines middle markets that The Hartford and the large personal lines carriers have.

With the acquisition, Chubb would be entering personal lines markets “where it does not have a very significant presence today” and be placing itself in direct competition with the likes of Allstate, State Farm, Progressive, Geico and others.

Even before the Chubb announcement, Hartwig predicted there would be consolidation in the personal lines business. He believes the Chubb move is going to act as a catalyst for further consolidation and cause a “great deal of reshuffling.”

He suggested that the large personal lines writers will take note of Chubb’s move because until now they have only competed with Chubb — and with AIG– in the high net worth market, a somewhat limited market. “Now this would literally put them head-to-head with one another,” he said.

“There are going to be sleepless nights in the C-suites of many personal lines carriers,” he said.

As for the timing, Hartwig noted that M&A activity in general is soaring. This is probably a “propitious moment” for such a deal given the expected rebound in the economy and the continuing expansion of middle-class wealth tied up in residential real estate. There is “a robust market for home sales and new construction, as far as the eye can see.”

The deal would place Chubb in a position to take advantage of “what’s likely to be quite robust and quite stable growth in the personal lines side, almost coast to coast.”

Hartwig said it is possible that The Hartford could receive competing bids. Among the insurers he sees with the resources to take a shot at The Hartford are Berkshire Hathaway, Travelers, Liberty Mutual, Zurich, as well as AIG and Allstate although he questions if the last two would have interest.

Even in this time of heightened scrutiny, whatever antitrust concerns might arise with this deal are probably manageable, although the business will have to be looked at line by line, state by state, he said.

*This story ran previously in our sister publication Insurance Journal.