Nearly half of insurance executives (44%) believe themselves to be in the top quartile for artificial intelligence (AI) transformation, despite limited business redesign, data readiness and measurable returns, a recent KPMG survey revealed.
None of the respondents consider themselves significantly behind in AI transformation, according to the report, titled Unlocking AI value in insurance, yet functional redesign remains rare.
No surveyed firm has fully redesigned sales and distribution or underwriting models around AI, and merely 3% have achieved full redesign in claims management and policy servicing, the report found.
The findings reveal a growing disconnect between urgency and readiness. 77% of insurers fear losing competitiveness within five years without an AI enterprise architecture redesign, yet 71% use AI for content generation and routine automation.
Only 29% run end-to-end processes via AI agents, even as 68% view slow AI adoption as the greater risk.
Dr Frank Pfaffenzeller, Global Head of Insurance, KPMG International, said: “The insurance industry understands that AI has the potential to reshape competition, customer expectations and business models.
“The challenge is that many organisations remain focused on efficiency gains rather than asking how AI might fundamentally change the kind of insurer they could become. The gap between activity and transformation is where the real opportunity and risk now sit.”
While 92% of respondents reported that AI enhances productivity and lowers operating expenses, only 25% leverage it to foster growth through AI-driven capabilities, new offerings, and services.
Correspondingly, almost 50% of AI funding is allocated to operational and back-office efficiency, whereas just 5% to 10% targets revenue innovation and new product development.
Measurement has not kept pace with spending. Only 11% of insurers surveyed describe their view of AI return on investment as very clear, while 23% report limited clarity or no clear view.
The report suggests this creates a risk that progress is measured through activity and adoption rather than changes in cost, cycle time, customer outcomes or growth.
According to the report, only 11% of surveyed insurers possess the strong data foundations and governance needed to scale AI beyond pilots. A further 55% describe themselves as moderately ready, while 21% are only partially ready and 13% are not ready, citing fragmented data, poor quality, unclear ownership and legacy systems.
Data is foundational to key insurance functions, including underwriting, pricing, claims, fraud detection, and customer service. s insurers aim to personalise offerings, refine decisions, and prevent losses, robust data quality, access, and governance will dictate whether they unlock new value or remain limited to efficiency gains.
Workforce capability and accountability gaps add to the challenge. Only 8% of insurers surveyed rate their workforce as highly proficient in AI tools, despite 54% saying they provide effective AI training.
By 2029, 72% expect underwriting to shift to a hybrid model with fewer roles, while 36% anticipate significant role elimination in claims management and 33% in policy servicing.
 Technology leaders such as Chief Digital, Technology and Information Officers hold primary accountability for AI in 45% of insurance organisations surveyed. Yet, 43% report uneven AI understanding outside leadership, and only 15% have fully integrated AI governance into strategic planning.
According to KPMG’s report, the next phase of AI transformation will focus on redesigning customer journeys, operating models, and decision-making.
Over time, AI could allow insurers to shift from simple risk transfer toward proactive risk prevention.
Matthew Smith, Global Lead for Insurance Strategy and Transformation and Partner, KPMG in the UK, said: “The industry has moved beyond asking whether AI matters and is now focused on how to create value from it.
“The insurers that make the greatest progress are likely to be those that combine trusted data, clear accountability and workforce readiness with a long-term view of transformation. The real opportunity lies not simply in making today’s processes more efficient, but in rethinking the way of working and how risk is understood, managed and prevented in the future.”
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