How private equity fuels AI solutions for insurers

Takeaways:

• Private equity incentivizes AI insurtech platforms
• Private equity support for AI spurs operations models changes
• Continued insurance M&A growth creates duplications for tech to solve

AI would not advance very far in the insurance industry without private-equity support, according to insurance and deal experts at global consultancy KPMG.

"With tech and AI disruption, private equity can help and does help platforms mature and scale up their people, processes and systems to think about growth for the next phase of their journey," said Michael Scherer, DAS sector leader for insurance at KPMG, in a recent insurance industry symposium webcast. "Private equity is making them more attractive assets and creating value, with the right cost and compensation structures for their operations, to make sure that profits are being maximized for all the various stakeholders."

While AI is driving a technology revolution in the insurance industry, private equity is fueling rapid structural change and evolution in distribution, according to Sean Vicente, U.S. sector leader for insurance at KPMG. The combination of AI and private equity is "demanding that we rethink our operational models," he said.

Mergers and acquisitions among insurers can lead to duplicate parts of their operations, but AI can be leveraged to find these and respond, according to Scherer.

M&A in insurance has been growing, also causing insurers to end up with multiple business lines they did not have before, such as wealth management or errors-and-omissions insurance, according to Peter Soloman, principal for deal advisory at KPMG. 

"There are very different cross-sell strategies that the platforms put into place and try to actually run through M&A," he said. "Some of that has worked, some of that hasn't worked. Platforms in this environment are refocusing on what they do well and what they want to be known for, and how they want to put themselves in the market." 

Insurers are using private-equity-backed AI tech platforms to examine their own business and determine which markets or products to stick with, and to see if other pieces of their business fit with those favored choices, added Soloman. 

These platforms optimize policyholder data to suggest more services, as Scherer explained. 

"You can have various AI tools scrub your underlying policy data and make suggestions of potential risk and coverages for clients in this space," he said. "The goal is to increase profitability with your existing client base, and motivate your sales producers to grow further."