BofA disagrees.
“Our view is that large language model digital agents can effectively do a non-immaterial portion of the work currently provided by 20-30k independent agents across the United States,” the BofA report stated.
For example, Progressive paid over $6 billion to independent agents last year, while Travelers and Hartford paid roughly $3.35 billion and $1.25 billion, respectively, in segments dominated by personal lines and small commercial business. BofA notes that these types of policies, such as standard home and auto insurance, represent low-sophistication transactions where human agents add little value, making direct-to-consumer digital channels a considerable cost-saver for the buyer.
Amrish Singh, CEO of the AI insurance startup Liberate, told Fortune that he thinks BofA’s estimate checks out. His own math shows a wide range of $4.8 billion to $33.6 billion of insurance tasks that can be automated in the U.S. alone.
While bulls argue that large insurance brokers do not heavily participate in personal lines or small commercial markets, BofA counters that years of constant “tuck-in M&A” have created a “snowball effect.” Hundreds of small acquired shops have brought a significant amount of low-complexity, small-ticket business under the umbrellas of large brokers, a vulnerability that is often obscured by subpar public disclosures. Furthermore, even large-case, complex business—which is unlikely to face direct disintermediation—could experience pricing deflation as AI demystifies the insurance markets for sophisticated corporate buyers.
Some investors have equated the AI threat to the much-hyped but slow-to-materialize disruption of self-driving cars. However, BofA draws a sharp distinction. While transitioning to autonomous vehicles will require trillions of dollars in infrastructure and take many years, deploying large language model chatbots is cheap, easy, and happening right now. As an example, the report points to Munich Re’s Next Insurance, which already offers an AI chatbot on its site where customers can purchase and bind commercial policies directly without a human agent.
BofA points out that the sector currently trades at 22x trailing free cash flow and 15 times enterprise value to trailing Ebitda. While bulls might argue that the stocks look cheap after falling 24% from peak valuations set a year ago, BofA cautions that these multiples have merely returned to pre-pandemic levels. Furthermore, BofA asserts that insurance distribution firms frequently utilize liberal earnings “adjustments”—such as excluding integration costs from their steady stream of acquisitions—that tend to significantly flatter their true earnings power.
For this story, Fortune journalists used generative AI as a research tool. An editor verified the accuracy of the information before publishing.
