Insurance Daily News

Insurance Brokerages Face Margin Squeeze as AI Adoption Grows

The insurance brokerage sector is navigating a period of financial cooling, according to the 2026 Operations Benchmarking Survey from The Council of Insurance Agents & Brokers (CIAB). Data collected in the summer of 2026 from 57 firms, ranging from small entities to billion-dollar enterprises, indicates that organic growth has decelerated significantly in fiscal year 2025. The number of firms reporting growth below 5% climbed to 25%, a notable increase from the 15% reported in the previous fiscal year. Furthermore, the share of high-performing firms achieving 15% to 20% growth dropped sharply to 5%, down from 18% in FY 2023.

Financial projections for the year proved overly optimistic for many organizations. While 78% of respondents had anticipated growth between 5% and 10% for FY 2025, only 55% actually achieved those results. This misalignment suggests a widespread struggle to forecast market conditions accurately. Profitability metrics also faced downward pressure, with average EBITDA margins falling to 23.5% from 26% in FY 2024. Simultaneously, operational costs have climbed; 52% of firms reported selling expense ratios of 75% or higher, an increase from 43% the year prior. This context suggests that firms are spending more to acquire and retain business, even as growth slows.

Despite these financial headwinds, the industry is increasingly turning to artificial intelligence to optimize back-office operations. The survey highlights a clear trend toward automation, particularly in document processing, which 83% of firms now utilize, up from 76% in the previous cycle. The use of AI for quoting has seen the most dramatic surge, jumping from 29% to 58% of respondents. Additionally, 19% of firms reported using AI for underwriting, a capability that was non-existent in the previous survey results. Other applications, such as data organization and client research, remain steady.

Contextually, this shift toward AI appears to be a defensive strategy against rising operational costs. While firms are losing business primarily due to relationship-based factors—such as changes in decision-makers—rather than technology or pricing, the adoption of AI suggests an attempt to reclaim efficiency. For software developers and LIMS providers, this data signals a clear market demand for tools that can automate high-volume, repetitive tasks like document processing and underwriting. As brokerages struggle with thinner margins, the value proposition for AI tools that directly reduce selling expense ratios will likely become the primary driver for future technology investment.

Why it matters

Insurance brokerages are increasingly turning to AI to combat rising operational expenses and tightening profit margins, signaling a shift toward automation in back-office workflows.

FAQ

How has AI adoption changed among insurance brokerages?
AI use for document processing rose to 83%, while AI for quoting jumped to 58% and underwriting adoption reached 19%.

What is the primary reason for lost business in this sector?
Most lost business is attributed to relationship-based factors, such as changes in decision-makers, rather than pricing or product issues.

Did brokerage firms meet their growth projections for FY 2025?
No; while 78% of firms projected growth of 5% to 10%, only 55% actually achieved it, and 25% reported growth below 5%.

Source: Risk & Insurance. See the original source for full details.