Shares of the public insurance brokerage fell 9% on February 9 after news broke that two digital companies were launching chatbot assistants using the ChatGPT tool. While valuations for the brokerage stocks have largely recovered, at least some analysts say the idea may be premature.
In a report from Bank of America Global Research, “Data on Insurance Agent/Broker Artificial Intelligence Disintermediation Risks,” analysts reported that at least $15 billion in independent agency commissions and broker fees (which are considered “lower complexity”) are at risk from disintermediation. Analysts estimate that total U.S. independent agency commissions/broker fees will exceed $100 billion by 2025.
The report looked at six airlines that serve small businesses and individuals, including Travelers (select accounts and individuals only), Hartford (small businesses and individuals only), Progressive, Cincinnati Fin’l, Hanover and Selective. In its review of the carriers, Bank of America said it believed more than $15 billion in commissions, which are largely skewed towards low complexity, were at risk.
“There are clearly other insurance companies – notably Liberty Mutual – that generate billions of dollars in additional commissions that may also be biased toward low complexity. Public insurance agent/broker disclosures tend to be very weak, making it difficult for investors to estimate what proportion of their commissions are biased toward low complexity,” the report said.
The report’s authors added that they were not suggesting “massive disintermediation of the entire enterprise,” but suggested that “non-invisible minorities within the enterprise” could be a risk.
“Our view is that large language model digital agents can effectively perform the non-substantive portion of the work currently provided by 20-30k independent agents across the U.S.,” the report states. But nothing is certain. “As with many papers on technological innovation, the future is difficult to predict,” the authors write.
At present, it seems that the disintermediation of artificial intelligence does not bring huge business risks. The complexity of this type of risk and the value that agents and brokers provide to these insureds is irreplaceable.
However, the report noted that “deflation” is likely to occur among large companies.
“While we do not expect large insurance buyers to use digital agents to purchase insurance, we do expect AI to demystify the insurance market,” the analysts wrote. “Sophisticated insurance buyers will benefit from the deflationary impact of technological innovation, potentially reducing the pricing power of their services.”
theme
Insurtech data-driven artificial intelligence
interested in AI?
Get automatic alerts on this topic.
