Brokers tap AI to chase growth as rates fall

Insurance brokers are betting that artificial intelligence will boost productivity and growth, even as investors worry the technology could eventually threaten the industry’s traditional business model.

In recent months, concerns that AI could reduce the need for intermediaries have weighed on brokerage share prices, even though brokers continue to post solid organic growth and strong profits. Still, most executives and analysts say AI is more likely to strengthen brokers than replace them.

AI’s effect on staffing is already starting to show. In May, Acrisure said it plans to cut about 2,250 jobs — roughly 11% of its workforce — by next year, saying AI is reducing the need for manual work. The company, which mainly serves small and midsize commercial clients, had previously announced a smaller AI-related reduction affecting about 400 employees. CEO Greg Williams said some client-facing tasks that once took days or weeks can now be completed in minutes.

The Acrisure move is one of the first large workforce cuts in the brokerage sector to be explicitly tied to AI. Over the past two years, several other brokers have announced broader cost-cutting efforts that also included increased use of technology.

Brokers are putting more emphasis on technology to improve productivity and support growth as rates ease in some lines and growth becomes harder to achieve. Even so, brokers and analysts still mostly view AI as a tool to improve efficiency and strengthen analytics.

Many brokers are using AI to automate administrative work, analyze large volumes of data, and support claims and risk management.

“AI can clearly make the insurance value chain more efficient. There is still a lot of manual data entry and repeated data entry,” said Carl Hess, CEO of Willis Towers Watson.

Large brokers, in particular, are expected to use AI-driven efficiencies to free up resources for sales, consulting and risk management services, said John Wepler, chairman and CEO of MarshBerry.

AI could also strengthen the position of the largest brokers, as they have access to proprietary data and can invest heavily in technology. Several analysts said smaller brokers may have a harder time keeping up.

At the same time, most analysts say fears that AI will cut commercial brokers out of the process are overstated. Commercial insurance buyers still face increasingly complex risks and often need advice across multiple coverage lines, jurisdictions, and regulatory environments.

“If I run a restaurant and I have a fire, is AI or a chatbot going to settle my claim for me? Probably not,” said Brian Meredith, New York-based managing director at UBS.

The parts of the market most exposed to automation are likely personal lines and small commercial accounts, which make up only a small share of revenue for most large brokers, said Elyse Greenspan, managing director of equity research for insurance at Wells Fargo Securities in New York.

Market conditions

The industry’s focus on improving productivity comes as insurance pricing has softened. Property insurance prices have fallen sharply after several years of steep increases, while casualty lines remain firmer because of larger liability settlements and court verdicts, analysts and executives said.

“Outside North American casualty, rates continue to decline across nearly all markets and lines,” Mr. Hess said.

The decline in property rates has been more pronounced in some areas. In Florida, coastal property pricing has fallen back to levels seen nearly a decade ago, said J. Powell Brown, president and CEO of Brown & Brown Inc.

Casualty pricing, however, continues to increase, he said.

The softer pricing environment has placed greater emphasis on winning new business and increasing exposures. Organic growth has slowed from the unusually strong levels seen during the hard market, but most brokers are still reporting healthy growth.

“Exposure growth is by far the most important factor,” said C. Gregory Peters, managing director of equity research at St. Petersburg, Florida-based Raymond James & Associates.

Economic conditions remain an important driver of brokerage revenue growth, and concerns about tariffs and geopolitical tensions persist. Even so, most analysts still view the environment as stable for brokers.

“It’s hard to call it bad; it’s just not as good as it was last year or the year before,” said J. Paul Newsome Jr., Minneapolis-based managing director at Piper Sandler & Co.

Many brokerage executives remain optimistic about their clients’ outlooks.

“They’re adding trucks, buildings, and new operations,” said J. Patrick Gallagher Jr., chairman and CEO of Arthur J. Gallagher & Co.

Brokers are also paying closer attention to the quality of their organic growth as conditions become more challenging.

Five years ago, simply posting organic growth was often seen as a sign of success. Today, investors are looking more closely at how that growth is generated, including whether it comes from new business, geographic expansion, specialization, or favorable market conditions, Mr. Wepler said.

The softer market has also renewed focus on sales velocity, which measures new business generation relative to a broker’s existing revenue base. If pricing and exposure trends weaken, brokers with stronger sales cultures and better producer-development programs are likely to be better positioned, he said.

Several analysts also said brokers may have an edge in building AI tools because of the large amount of proprietary information they have collected over years of working with policyholders and insurers.

That data could help brokers improve analytics, spot emerging risks, and give clients more tailored advice, while also creating barriers for potential technology-driven competitors, analysts said.

Competition for talent also intensified over the past year. Howden Group’s rapid expansion into the U.S. retail brokerage market by hiring hundreds of producers and executives from competitors disrupted the market and led to more poaching-related litigation among brokers.

Analysts say the move could also raise overall compensation costs as firms try to retain producers or recruit from competitors.

Consolidation

Consolidation remains a major growth driver for many brokerages, and several large deals closed last year.

Arthur J. Gallagher & Co.’s $13.45 billion acquisition of AssuredPartners and Brown & Brown’s $9.83 billion purchase of Accession Risk Management Group, the parent of Risk Strategies Co. and One80 Intermediaries, rank among the largest brokerage deals ever announced.

At the same time, overall acquisition activity has slowed from the record levels reached earlier in the decade as higher borrowing costs make dealmaking more difficult.

Even so, few expect consolidation to fade. The brokerage sector remains highly fragmented, with thousands of firms still seen as potential acquisition targets.

“It’s still a very fragmented market. There are thousands of opportunities out there, and we see room to grow,” said Greg Case, president and CEO of Aon.

Acquisition activity is likely to continue even if buyers become more selective and financing structures change, said Joseph Marinucci, New York-based senior credit analyst at S&P Global Ratings.

As rates soften and acquisition activity slows, technology and talent are becoming even more important, analysts and executives said.

Despite concerns about AI, most industry observers believe brokers remain well positioned because commercial risks are complex and trusted advice still matters.

“The obituary for this sector has been written too early on multiple occasions,” said Tim Zawacki, a Charlottesville, Virginia-based insurance sector strategist at S&P Global Market Intelligence.