AI’s dual reality: Efficiency for insurers, disruption for agents

By Paige Waters and Stephanie Macro

Artificial intelligence is no longer a buzzword reserved for technology conferences and corporate strategy decks. It is actively reshaping how life and health insurance is sold, underwritten, serviced and regulated. Those who understand the technology and how to implement it wisely will be better positioned for the future of insurance distribution.

AI is already inside the industry's core operations

Machine learning and AI are embedded in the daily operations of insurers, administrators and distributors across the industry. Underwriting has seen the most dramatic transformation. AI-driven platforms now pull information from electronic health records, prescription histories and wearable device data to render near-instant decisions -- often without a medical exam -- cutting underwriting and claims processing times by up to 40%.

The competitive gap between early adopters and laggards is widening rapidly. Claims management is similarly evolving. AI models triage incoming claims, flag fraud and billing anomalies, and in some cases adjudicate straightforward claims end-to-end with limited human involvement. For health insurers, this has significant cost management implications at a time when medical claim inflation continues to accelerate.

Distribution and sales are being redefined

The AI transformation extends well beyond back-office operations. Insurtech platforms and forward-looking insurers are deploying predictive lead scoring, automated consumer engagement journeys, and advisor augmentation tools that surface client insights and life-event triggers ahead of agent interactions. These tools compress the traditional sales cycle and raise the bar for effective distribution. Insurers that invest in AI-powered sales infrastructure will increasingly outpace those relying on legacy systems and manual workflows.

The consumer experience expectation has shifted

Consumers now expect fast responses, personalized communication and seamless digital access from their insurer. Yet despite expanded digital capabilities, customer satisfaction scores across the insurance industry declined in 2025. The lesson: Automation handles volume, but it struggles with complexity and emotion.

Policyholders navigating a serious health event, a disputed claim or a beneficiary matter want to engage with a knowledgeable, empathetic human. The industry's challenge -- and opportunity -- is deploying AI to handle routine interactions efficiently while preserving the human touchpoints that drive loyalty and trust.

Regulatory and compliance pressures are mounting

State-level AI regulation has accelerated significantly. As of mid-2026, 25 states have adopted the NAIC Model Bulletin on the Use of AI Systems by Insurers (adopted December 2023). New York, California, Colorado and Texas have issued their own guidance -- bringing the total to approximately 29 states with some form of AI insurance guidance.

In March 2026, the NAIC launched a 12-state pilot of its AI Systems Evaluation Tool, running through September 2026. The AI Tool gives regulators a structured framework for market conduct examinations, including breadth of AI adoption across the enterprise; structure of AI governance; deep-dive review of high-risk systems; and data sources. The AI Tool is expected to be formally adopted at the 2026 NAIC Fall National Meeting.

Even insurers outside the 12 pilot states should treat its exhibits as the template regulators will use going forward. Additionally, a model law or guidance on third-party data and AI model oversight is anticipated later in 2026.

The industry should prepare now for stricter vendor diligence, contractual controls, and enforceable explainability standards. AI models must be auditable, bias-tested, and documented. Enforcement has not yet widely materialized, but the examination infrastructure is now operational -- and regulators have signaled it will be used.

The disruptive reality for life and health agents

AI is not neutral for the distribution force. While insurers gain real efficiency, agents face growing disruption to their role, compensation and insurer relationships. Insurers are deploying AI-powered direct-to-consumer platforms that bypass agents entirely for routine sales. An estimated half of all U.S. consumers are expected to use AI tools to research and shop for insurance in 2026 -- a direct threat to agent market share.

Meanwhile, commission compression is emerging as insurers strive to reduce distribution costs through AI-enabled direct channels, and some are revising agent agreements to reflect reduced commissions on AI-originated policies. New AI-use provisions are also appearing in insurer contracts, restricting how agents may use third-party AI tools for quoting and client communications, citing compliance, data privacy, and concerns about errors and omissions.

Workforce displacement is a real risk, particularly for newer agents. Agentic AI -- systems that autonomously complete multi-step tasks -- is handling intake, policy comparisons, renewals and routine service inquiries that were previously entry-level agent work. This disrupts the pipeline for developing the next generation of experienced practitioners.

For health agents specifically, AI-driven claims adjudication and prior authorization systems are placing agents on the front lines of client frustration without the transparency to understand or challenge AI's decisions.

The agents who thrive will not be those who resist AI -- they will be those who embrace it strategically, scrutinize their insurer agency agreements and build a value proposition centered on the complex advisory needs that AI cannot replicate.

AI is not a future threat to be monitored from a distance. It is a present-tense competitive and operational reality. Life and health insurers that invest in AI capabilities, build responsible governance frameworks,and keep the human element at the center of the customer relationship will define what this industry looks like in the decade ahead.

Paige Waters is partner at Troutman Pepper Locke law firm. Contact her at [email protected].

Stephanie Macro is counsel at Troutman Papper Locke law firm. Contact her at [email protected].

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