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April 1, 2021

Industry Challenge

Legacy systems are more costly than you thought

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What they’re saying: A recent study shows that 5–10% of insurance premiums vanish every year due to the inefficiencies caused by legacy systems.

The bigger picture: Instead of looking at it from a loss perspective, we see that 5–10% as savings immediately available to insurers who upgrade their system. New systems open up new opportunities beyond fixing old problems, they can help insurers grow in new ways. 

Read: Premium Leakage Due to Legacy Systems

Big Tech and Insurance

Amazon is leveraging Prime memberships to sell small commercial Insurance.

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What it means for now: Amazon has a foot in the door with almost every company in the United States, and now they’re about to use that opportunity to expand their Insurance business in a big way. 

Where it’s going: The Insurance industry overall is poised for dramatic growth, innovations are giving rise to new kinds of coverage and coverage bundling. One of Amazon’s key competencies is their ability to sell bundles, which enables them to get the most out of every customer interaction. Bundling is something every insurer can get better at, and it will increase the financial-footprint of insurers who do it well. 

Read: Amazon to offer business insurance through new partnership

Acquisition Spotlight

What was behind the scenes of Chubb’s 23 billion dollar offer for Hartford that was rejected

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What happened: Last month Chubb offered to buy Hartford for $23 billion. At face value, it seems to be a play to grow their small commercial business, but it has wider implications for our industry. Hartford later rejected the deal.

What analysts were saying: “A transaction like this would add even more size and scale to Chubb … making the company the fifth-largest P&C insurer in the United States based on 2020 net written premiums and strengthening the position of Chubb as the leading commercial insurer in the United States,” said James Auden, managing director of insurance at Fitch Ratings. 

What it means: Hartford is an industry-leading small commercial insurer, and Chubb believes they can bring significant cost savings. This just shows that even the industry leaders are ripe for improvement. 

Read: Chubb bidding for Hartford’s ‘crown jewel’

Could it actually be about personal lines? A lot of the analysis focused on small commercial, which makes sense, but Hartford’s personal lines business is also very strong with a licensing deal with AARP and writing over $5 billion combined personal lines, auto, and homeowners. 

What they’re saying: With the acquisition, Chubb would be entering personal lines markets where they don’t have a very significant presence today, and be placing themselves in direct competition with the likes of Allstate, State Farm, Progressive, Geico, and others.

Chubb’s Reaction: The diversification and scale available through Hartford is a tempting opportunity, but Chubb is standing by their original offer for now.

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