Expert looks at range of insurance industry trends as AI takes hold

With the advance of AI, the rapid change in markets, and ongoing challenges, the insurance industry is carving out new strategies at different levels as it adapts and strives for growth.

There is an ongoing trend of larger insurance brokers shedding underperforming assets in favor of diversifying their product landscape, finding cross-sell opportunities and pursuing strong adjacencies, David Crofts, insurance M&A lead, West Monroe Partners, said.

“I think what the larger brokers have done is tried to grow into the market as quickly as possible through M&A and have made a lot of bets on sort of non-core strategies. A lot of them have been technology or just trying to diversify the product landscape that they’re serving with the business case that they could do some significant cross-sell,” Crofts told InsuranceNewsNet.

Meanwhile, the lower middle market is increasingly exploring Managing General Agents (MGAs).

“The lower mid-market ones and the smaller, lower mid-market ones are looking at MGAs and trying to either build MGAs from the ground up, acquire decent MGA assets that are out there or, in a handful of cases, trying to carve out or lift out MGAs or underwriting teams out of carriers. I think that’s a trend that will continue; there’s just strong market support for that,” he said.

Additionally, the AI trend in insurance is spilling over into market activity, as Crofts said more data-enabled brokers will be successful in this space.

“For a broker to be successful in the wholesale and MGA space, it’s becoming more and more table stakes to have a very strong data and analytics competency,” Crofts said. “We’re seeing much more use of AI, much more heavy use of data-driven insights as part of the sales, the selling model and sales enablement process in brokers.”

Adjacencies and cross-selling

Crofts noted that larger brokers are “going more aggressively” into stronger adjacencies, such as retail brokers buying wholesale brokerages as a strategy to capture commission that would be otherwise lost through an outside wholesaler.

At the same time, larger brokers have been using M&As to buy new companies in different areas and diversify their product offerings. For instance, P&C employee benefit brokers buying wealth or retirement companies, targeting high-net-worth clients and trying to figure out how to “unlock the cross-sell” between benefit purchasing and retirement tools like 401(k) administration.

“What we’ve seen is a lot of the brokers have struggled to make that cross-sell work. So, these brokers have seen it as a good time to shed some of these non-core assets that maybe underperformed,” Crofts explained.

‘Underperforming’ insurtechs

Crofts noted that some insurtech businesses have been targeted for divestment as while the barriers to entry are not significantly high, it has been a highly competitive landscape where it has been difficult for many companies to scale past a certain point.

“I think that spinning them out or divesting them is best for everybody in those situations, so that the asset itself can get proper investment, can recapitalize, potentially pivot slightly into a little bit different direction and is a little bit less bound by the requirements of being part of a larger organization and contributing to the overall growth of the organization in more synergistic ways, which has been sort of difficult,” Crofts said.

Lower middle market & MGAs

Meanwhile, lower middle market carriers see the MGA space as an opportunity to diversify and separate themselves from risk while preserving brand integrity, Crofts said. It provides them with “a lot more strategic flexibility” when it comes to accepting risk, among other benefits.

“Having an MGA as part of a brokerage is a pretty sensible strategy because, just like with the wholesale side, you can send either business through your wholesaler and then into your MGA, or you can have your broker send it directly into your MGA for certain programs or markets that you support,” Crofts said.

AI driving competition

Crofts also mentioned the widespread, rapid adoption of AI is another major trend being observed in the market, as more data-ready brokers come out on top. In his experience, there has been a race for smaller, mid-market brokers to catch up with larger, more sophisticated, data-enabled brokers.

“The market is moving away from that traditional, belly-to-belly sales model of relationships. You’re seeing, especially in the commercial lines of business — and increasingly now in personal lines as well — a strong desire to move towards more digitally-enabled selling and much more selective choice of risk and business to win and retain,” he noted.

This is another factor driving divestment, he said, as brokers who have made investments into multiple lines of business may be seeing some assets underperform while at the same time facing “a lot of pressure to make these data and digital investments.”

“I think that they’re seeing a lot more opportunity to divest and simplify and focus on their core broker business and then make those investments on the data and digital side,” Crofts said.

West Monroe Partners is a business and technology consultancy based in Chicago, Illinois. Founded in 2002, the firm has more than 2,000 employees in 10 offices around the world.

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