AI could boost global insurance premiums by $70 billion
McKinsey believes AI is one of the biggest drivers of value creation in the insurance industry today. The firm points to structural new features of the sector – fragmented processes, large amounts of structured and unstructured data, and insurers’ legacy IT systems – as an enabling environment for rapid adoption of the technology.
Insurance is powered by big data, but it relies heavily on manual labor. Underwriters analyze claims page by page. Claims adjusters review large volumes of documents.
According to McKinsey, this imbalance creates economic pressure for automation, especially in the face of rising cyber risks and climate-related losses.
Private equity has already taken notice of these opportunities. Investors continue to pour money into distributors, insurance intermediaries, software developers and insurtechs, according to the Beinsure report.
McKinsey sees AI as a filter for capital allocation, aimed at expanding margins and improving portfolio returns.
Deal volume declined in 2025, but insurance has retained investor interest due to the stability of earnings across the cycle.
Brokers provide about 70% of transaction activity, although annual deal volume has fallen by about 20% amid saturation of consolidation and more selective buyer behavior. Scale alone no longer guarantees expected returns.
Insurance agencies generate about 5% of deals and remain attractive thanks to a model with low capital requirements and underwriting margins based on specialized expertise.
In the US, premiums flowing through agencies have grown by about 14% annually over the past decade. Direct premiums grew from $47 billion in 2020 to $97 billion in 2024. This momentum is once again attracting private equity.
Insurtech and SaaS have shown an average annual growth rate of about 15% over the past five years, supported by recurring revenue and integrated customer relationships. Software providers are attracting investors with their subscription models and integration into insurer infrastructure.
Geographically, the US dominates the private equity space due to its market depth and mature ownership structure. Capital invested in Europe declined by an average of 18% per year from 2020 to the first half of 2025.
In contrast, private equity investment in the US grew by about 26% per year from 2022 to 2025, outpacing the UK and continental Europe.
McKinsey describes the development of AI in stages. Predictive analytics are already being used to detect fraud, price, and model risks. Generative systems are processing documents in the underwriting and claims processes.
Emerging agent architectures promise to manage entire business processes with minimal human intervention.
We don’t think these changes will eliminate existing players. McKinsey advises investors to identify which portfolio companies are moving from pilots to full-scale AI implementations and how this is impacting financial results.
The firm estimates that generative AI could add $50 billion to $70 billion in additional insurance revenues. Marketing, customer operations, and software development are expected to contribute the most.
Investors who focus on operational value creation outperform their peers by 2-3 percentage points in internal rate of return. Disciplined AI implementation, not piecemeal experimentation, will determine winners.
AI is helping brokers automate the process of taking applications, matching them to underwriting appetite, and generating renewal reminders.
Early implementations are showing increased cross-selling and reduced churn through more targeted interactions. Simple renewals can gradually transition to low-touch service.
For agencies, AI is reducing underwriting times. Examples include faster processing of insurance applications, more accurate segmentation, risk scoring, and automated paperwork.
Semi-autonomous underwriting systems are already able to quote and close contracts for simple risks with minimal intervention. McKinsey cites examples where quote times have been reduced from weeks to days, and in certain commercial insurance classes, from days to hours.
Investment in software has grown by about 20% annually for the five years to mid-2025. Insurers are already rethinking legacy architectures and moving to modular environments with high system interoperability.
Vendors that provide integration between data layers, models, and automated agents are positioning themselves as infrastructure partners, not just functionality developers.
Insurtechs have detailed service data sets customers. This creates opportunities for AI to be deployed to improve speed and consistency in claims management and policy administration.
However, business models that are tied to headcount or transaction volume can limit the potential for automation. If underwriting remains dependent on human labor, companies’ growth will be limited.
Future differentiation depends on two factors, analysts believe, the introduction of technology and the simultaneous change in pricing models and cost control. AI alone will not guarantee increased profitability, i.e. the quality of execution will be decisive.