Management consulting firm McKinsey & Company believes that artificial intelligence (AI) is one of the most important opportunities for value creation in the insurance industry.
In its analysis, McKinsey & Company believes that the industry’s structural characteristics, including fragmented workflows and extensive structured and unstructured data repositories, position it well for accelerated technology adoption in the coming years.
McKinsey & Company said private investors have poured significant capital into selected insurance sub-sectors, particularly distributors, managing general agents (MGAs), software providers and third-party administrators (TPAs).
The firm believes understanding how AI may impact these areas is critical for investors seeking to enhance portfolio performance and create sustainable differentiation. The company conducted an assessment around current adoption patterns and the long-term strategic impact of generative and agent-based systems.
McKinsey & Company said that despite a decline in overall transaction volumes in 2025, the insurance industry continues to attract investment due to its resilience across economic cycles. The company reported that brokers accounted for approximately 70% of total trading volume, down approximately 20% year-over-year, reflecting increased selectivity in a more mature integrated environment.
By comparison, MGA accounts for about 5% of deal activity and remains attractive in McKinsey & Company’s assessment due to its capital-light structure and relatively high margins supported by specialized underwriting and distribution capabilities.
The company also highlighted continued investor interest in TPA, which has grown at an average annual rate of approximately 15% over the past five years, supported by recurring revenue and embedded customer relationships. Additionally, McKinsey & Company views insurance software providers, including core systems and analytics platforms, as attractive assets due to their subscription-based revenue models and their role in supporting infrastructure across the insurance value chain.
From a geographical perspective, McKinsey reports that the United States accounts for the majority of private equity deals, reflecting the size of the market and the maturity of private ownership. The company noted that investment capital in Europe fell at an average annual rate of about 18% from 2020 to the first half of 2025.
Over the same period, McKinsey & Company observed that private equity investment in the United States will grow at an annual rate of 26% from 2022 to 2025, outpacing growth in the United Kingdom and continental Europe.
At the heart of McKinsey & Company’s analysis is the fact that the insurance industry relies on a wide range of data assets while still relying heavily on manual processes. At the same time, insurers face an increasing number of complex and evolving risks, including cyber threats and climate-related events. According to McKinsey & Company’s assessment, these dynamics create powerful incentives for technology deployment.
The company described advances in AI capabilities, starting with predictive analytics in areas such as fraud detection, pricing and risk modeling, expanding to generative AI applications in document-intensive processes such as policy issuance and claims processing, and moving toward more autonomous agent-based systems capable of managing end-to-end workflows.
McKinsey & Company emphasizes that AI is more likely to reshape existing operating models than completely replace them. The firm recommends investors focus on which assets are making meaningful progress in AI adoption and how that progress translates into competitive advantage.
Against this backdrop, McKinsey & Company estimates that generative AI could bring $50 billion to $70 billion in additional revenue to the insurance industry, with a particular impact on marketing, customer operations, and software engineering. The firm also notes that investors who systematically prioritize operational value creation tend to achieve internal rates of return that are two to three percentage points higher than their peers, suggesting that rigorous AI integration could be an important driver of future outperformance.
In the brokerage space, McKinsey & Company observes that value creation is moving away from pure integration toward vertical integration, improved placement capabilities, and enhanced data-backed advisory services. The company believes that AI is positioned to support brokers rather than replace them, enabling smarter customer guidance and improved operational efficiency.
McKinsey & Company points to early generative AI applications such as automated submission processing, interest matching, and digital assistance with renewals and cross-sells. Over time, the company expects more advanced systems to manage simple updates with limited human involvement. McKinsey & Company cites case evidence showing that AI-powered engagement can increase cross-selling and significantly reduce churn through more targeted communication strategies.
As for MGAs, McKinsey & Company reports that the volume of U.S. premiums channeled through these platforms has grown by about 14% annually over the past 10 years, with direct premiums increasing from $47 billion in 2020 to $97 billion in 2024. The company attributes continued private equity investment to favorable economics and scalability. McKinsey & Company identified multiple AI applications in underwriting, including faster submission processing, granular segmentation, enhanced risk scoring and automated documentation.
The company also noted that early adoption of a semi-autonomous underwriting process enabled it to quote and bundle simpler risks with minimal intervention. In selected cases reviewed by McKinsey & Company, quote times have shortened from weeks to days, and in some commercial product lines from days to just hours.
In the software sector, McKinsey & Company highlights that investment will continue to grow by approximately 20% per year in the five years to mid-2025. The company observes that insurance companies are rethinking traditional architectures and increasingly favoring modular, interoperable environments that support multiple AI applications.
McKinsey & Company believes this shift creates opportunities for specialized AI providers and core platforms that enable open integration. In its view, vendors that facilitate connections between data, models and automated agents may become a core component of the insurtech landscape in the future.
For TPA, McKinsey & Company acknowledged strong investor interest and steady deal growth. The company believes TPA’s ability to capture detailed service data puts them well-positioned to deploy AI to improve speed, consistency and quality of service.
However, McKinsey & Company warns that prevailing business models, often tied to employee numbers or activity levels, may limit the financial benefits of automation. In its assessment, future differentiation depends not only on technology adoption, but also on evolving pricing structures and maintaining cost competitiveness.
McKinsey & Company outlines four priorities for investors. First, the firm recommends embedding AI assessments throughout the investment lifecycle, from due diligence to portfolio oversight. Second, McKinsey & Company recommends developing a consistent, company-wide framework to evaluate use cases, governance, and performance metrics.
Third, the company encourages scenario planning to evaluate different adoption trajectories and align capital allocation with technology readiness. Finally, McKinsey & Company highlights the importance of anticipating workforce impacts, noting that a large proportion of non-manual jobs are likely to be affected by automation and require retraining and organizational adaptation.
