Don’t Panic
Artificial intelligence is only the latest advancement that will apparently doom insurance brokers. We’re still here.
After nearly 40 years in this industry sector, I’ve heard every doom scenario for how commercial insurance brokerage is going to be disrupted, diminished, and disintermediated.
They’ve all been wrong. The latest head-scratcher was the February approval by OpenAI of the first insurer app for ChatGPT, leading to single-day declines of 8% to 11% in the publicly traded commercial brokerages’ share value.
I’m not any tech expert, but seems to me that you can make the case that AI could upend insurance if personal lines are the meat and potatoes of your business. (Something tells me, though, that even Flo, Mayhem, and the LiMu Emu will be fine.) Investor perception this year has shifted from “AI is an efficiency tool” to “AI is a distribution threat.” But personal lines are a small part of revenue for most publicly traded brokers, which specialize in complex commercial risks that require human expertise to navigate. As Gallagher CEO Pat Gallagher said in February, “The trusted advisor is more important today because of AI than it was before AI because everybody is confused.”
This reminds me of the disintermediation threat that we all thought Obamacare was. Early in the Obama administration, White House health czar Nancy Ann DeParle (a lovely person, brilliant mind, and good friend) pointed to brokers as a target because they add “unnecessary administrative complexity.” As the health insurance exchanges were being established, there was a pervasive fear that employer-provided small group plans at a minimum would all migrate away from the private market. At the time, Adam Bruckman, CEO of Digital (now OneDigital) Insurance, was on The Council’s board of directors. Most of his business was small group, with hundreds of brokerages contracting with Adam’s firm to administer them. A refrain at the time was that Adam was a great guy with a terrific future, but as to the looming Affordable Care Act, he also was a “dead man walking.”
Sixteen years after the enactment of the ACA, OneDigital is valued at more than $7 billion, pushing $3 billion in annual revenue, and Adam’s still the chief. Last laugh, anyone?
“Industry-killing” threats are nothing new. In my early years as an industry lobbyist, the top issue was keeping banks out of insurance distribution, as they were perceived as an existential threat to the sector. I can still cite my arguments about how banks would use their power to compel consumers to purchase insurance policies directly from them as a condition for receiving loans or other financial services. In kind, our competitors at the American Bankers Association accused us of being “buggy whip manufacturers.” They were the future; we were the Luddites.
Legislatively and judicially, we lost all those protectionist battles. We were wrong and the banks were right—free and open competition, unfettered from government interference, prevailed. Banks got into the business, and decades later, they have largely exited (with some notable exceptions of outstanding firms that balance the cultural divide).
As long as brokers are vital partners who provide specialized advocacy, risk management, and tailored solutions, the industry will remain resilient.
We faced a big challenge in the early ’90s, when a series of court rulings threatened insurance agencies and brokerages’ ability to depreciate the value of their renewal lists. We solved that issue of intangible asset depreciation in the Clinton tax act of 1993. (It’s questionable what the value of an agency or brokerage would be if customer lists weren’t treated for tax purposes as an asset these days.)
Remember Parker Conrad, the Zenefits CEO with a health insurance tech play? “If you’re an insurance broker, we’re going to drink your milkshake,” he proclaimed in 2013. (One wonders how many milkshake-drinkings have been threatened since There Will Be Blood was released.) He compared commercial brokerage to a “rotting carcass in the desert,” and got tons of favorable news coverage. After his company imploded in 2016, Adam Bruckman and OneDigital picked over the tech remains of the Zenefits carcass (forgive the analogy).
Similar concerns have been raised with the surge of insurtech in the past decade. Insurtech is indeed significantly impacting commercial insurance brokerage, but it is an “augmentative tool that reshapes workflows rather than a force that will immediately diminish overall sector revenue,” according to a recent article in Reinsurance News. “While AI and automation are beginning to disintermediate simple, standardized risks—potentially reducing premium growth for some brokers—the complex, advisory-driven nature of large commercial placements keeps human brokers vital.”
AI and other tech issues, along with the long-term erosion of employer-based group health insurance, are still challenges (and opportunities) that must be met. Many argue passionately these days that the proliferating talent lift-out strategies in retail brokerage are likewise a menace to enterprise value. (I’ll not resolve that one here.)
Am I being dismissive about existential threats to commercial insurance brokerage? I don’t think so.
My point is that reports of the imminent death of our industry have been greatly exaggerated—again. As Pat Gallagher says, insurance is the oxygen—not just the oil—of commerce. As long as brokers are vital partners who provide specialized advocacy, risk management, and tailored solutions, the industry will remain resilient.
