Distribution costs and weak AI integration are limiting insurers’ returns.
Insurers risk missing the biggest financial gains from artificial intelligence (AI) if they keep the technology in isolated pilot projects, with distribution costs consuming as much as $0.80 of every first-year life premium, according to McKinsey & Company, Inc.
Global gross written premiums have grown 4.9% a year since 2005 to about $8.3t in 2025, whilst profits before tax increased 4.3% annually to about $580b, McKinsey said in a July report.
The gap points to weaker operating efficiency despite steady premium growth. Premiums as a share of global economic output have also remained flat for a decade, even as the natural catastrophe protection gap reached $133b in 2025 and less than 1% of global cyber costs were insured, McKinsey said.
Commissions account for $0.10 to $0.25 of every premium dollar in property and casualty insurance, whilst insurance cost ratios are 17% higher globally than in 2005, it said.
“The real question for insurers isn’t whether to invest in AI; it’s how to embed it into underwriting, claims and growth in a way that’s governed, scalable, and built to last,” Bruno Abril, NTT DATA Group Corporation’s global lead for the insurance industry, said in a June report.
NTT Data found that 85.8% of insurers whose AI strategies were fully aligned with their business strategies reported profit increases of at least 5% from AI, compared with 45.5% of insurers with less-aligned strategies.
AI leaders are also spending more. About 71.7% described their AI investment as “very significant,” compared with 51% of lagging insurers, whilst 63% planned to increase spending further.
NTT Data surveyed 291 insurance executives and classified 46, or 16%, as AI leaders.
McKinsey said AI could reshape how insurers sell and service policies, including through AI assistants that compare coverage and switch policies on behalf of customers.
AI has also reduced onboarding costs by as much as 40% and increased agent productivity by 10% to 20%, it said.
More than half of AI leaders are rebuilding core underwriting, claims, and policy systems with AI embedded into them, compared with 6.5% of lagging insurers, NTT Data said.
Governance remains another dividing line. About 67.4% of AI leaders use centralised AI governance, compared with 23.5% of lagging insurers, whilst almost 85% have a dedicated chief AI officer, compared with 45.1% of lagging insurers.
“AI could upend the industry’s long-standing structures and dynamics,” McKinsey said.
Questions to ponder:
- Can insurers capture AI’s cost savings without weakening customer service or underwriting quality?
- Will AI reduce distribution costs enough to materially improve insurance profitability?
- How much centralised oversight is needed before insurers can scale AI safely?