Will AI Eat the Insurance Broker?
The 1990s said yes. The 1990s were wrong. This time really might be different — just not how you’d think.
A lot of people are once again convinced that the insurance broker is about to be obsolete. A Sequoia article on AI’s impact on brokerage moved markets earlier this year. Citrini Research painted a picture of a future without intermediaries. Boards and investors have taken note of this, and it has generated a lot of discussion.
“The Industry is History” - Again?
I keep coming back to a single observation: this all reminds me of the late nineties, when there was a similarly confident conviction among the Technorati that the internet would destroy independent agents. As time went by, insurance distribution did evolve — primarily in personal auto — but things did not play out the way people predicted during the internet boom.
Indeed, I think AI will be massively transformational for insurance. I also think we are very early in the hype cycle. You can be in a hype cycle with a massive bubble and still have longer-term transformational change underneath it. The internet build-out in the late 90s is the obvious example. Both things can be true.
So with that in mind - what’s actually different, and what isn’t, when we layer AI onto this old debate?
The Difference Between E*Trade and eCoverage
I think it’s always important to focus on consumer behavior: the primary reason consumers, particularly at the lower end of the market (including commercial, where the small business buyer behaves more like a consumer) did not meaningfully shift to direct online over the last decades is simply because
a) they have absolutely no desire to deal with the insurance purchase at all and
b) the price of the broker is invisible to them (and online products turned out not to be cheaper)
Securities brokerage, by contrast, was massively disrupted. Consumers moved en masse to online trading, and the value captured by the middleman for simple trades evaporated. The distinction is that consumers love doing their own trading. It’s fun, addictive, and can make you rich.
Insurance is none of those things.
Ironically, this aligns with Sequoia’s Roelof Botha’s “seven vices” philosophy of investing in the post-internet era — bet on the durable human desire to indulge.
E*Trade thrived. eCoverage didn’t. The reasons weren’t technological.
“This Time it’s Different” — Maybe
“This time it’s different” may indeed apply, because the internet only provided direct access to consumers. AI can potentially do something much harder: handle significantly complex transactions, reason, advise, and negotiate.
If AI can manage all of that, will consumers at the low end of the market care?
I think there’s a good chance most of them won’t. There will be agentic-AI-powered brokers, and some segment of the market will migrate to them — just as some segment migrated to online direct. But I suspect that channel will cannibalize direct online market share more than it cannibalizes the traditional broker. The psychographic profile is the same. The people who wanted to “do it themselves” already did. The people who didn’t, likely still don’t.
Stubborn Consumers vs. Professional Buyers
That got me thinking that the real AI disruption to insurance brokerage may not be at the lower end of the market at all. It may be in the middle market.
The key difference is that middle market buyers are professional buyers. They have an intrinsic motivation to manage their insurance costs and risk. The products at that level are still not impossibly complex for an educated buyer. And there may be significant cost advantages to bypassing the broker channel — advantages that an AI agent can actually surface and act on.
The internet-era promise of “cutting out the middleman” never came true for small commercial because the cost of the agent’s commission was simply substituted by Google Search and other customer acquisition costs. Those costs were so high that most insurtechs that started out direct-to-small-business eventually pivoted to selling through agents.
AI changes that math. Not by replacing the broker’s relationship with the small business owner — that relationship is, again, mostly a relief from having to think about insurance at all. But by potentially making it economically viable for a professional middle-market buyer to get high-quality, multi-carrier placement without a traditional retail broker in the loop. The higher end of the market will still be dominated by big brokers.
A Double-Edged sword
I believe retail brokers — especially those weighted toward small commercial — have an enormous opportunity to expand EBITDA margins using AI. To the extent that disruption to the channel manifests as margin compression across the industry, the brokers who drive substantial internal efficiency can offset some or all of that pressure.
Predictably, the margin pressure will most likely take the form of lower carrier commissions over time. The significant differential between broker margins and carrier margins is not sustainable in a logical market. Unfortunately, even brokers who win the efficiency race will face topline headwinds and a lower overall TAM.
That dynamic is not great news for PE-backed roll-ups carrying heavy debt loads. The brokers in that position who don’t move quickly on internal AI-driven efficiency may find themselves squeezed from both sides — slower topline growth, with debt facilities that assumed a different, more predictable world. That risk has been making the rounds among industry peers for good reason.
So, Will AI Eat the Broker?
My one-line answer: no, AI will not obsolete the retail brokerage model. But it will radically transform the operating model — for the better, in the hands of operators who actually use the next few years to rebuild the workflows underneath. I believe that larger brokers can use AI and automation to reduce service costs by 50-70%.
Negative market sentiment may persist ahead of the actual outcome, and that’s a real risk to public-market valuations on a one-to-three year view. The fundamentals, on a longer view, favor operators who lean heavily into small commercial, where buyer behavior is most stubborn and the efficiency gains are most dramatic.
Of course, I might just be wrong. The brokerage industry could be eaten by AI in a way I am underestimating. Reasonable people can land in a different place on this, and I’d like to hear from those of you who do.
Much more to discuss. Everything is moving fast enough that I expect this won’t be the last time I write on the topic.
—Darryl