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Since Micah’s still on paternity leave, I republished my personal LinkedIn newsletter from yesterday for today’s deep dive. But, be warned, it’s twice as long as usual. Hope you don’t mind. I think you’ll enjoy, though. Ok, here we go…

Every few months, a new AI startup declares war on insurance brokers.

The pitch is always the same. Traditional brokers are greedy, lazy, and obsolete, and AI is finally coming to take over. See below:

It's a great story for raising VC money, but in my opinion, it's a silly strawman.

Nobody serious is actually arguing that AI will eliminate human brokers anytime soon. Look under the hood of even the most aggressive tech-first platforms, like WithCoverage, claiming to replace the traditional agent, and what do you actually find? Licensed humans handling the accounts.

They haven't removed the human. They've just engineered a better interface.

Despite all the hype, and remember VC-backed startups need hype to justify their inflated valuations, my personal belief is that the future of commercial insurance remains fundamentally human.

Why do I think that? Because human biology hasn't changed. Humans default to trusting other humans in high stakes, irreversible, emotionally weighted decisions, and that isn't a preference I think changes with better tech. It's hardwired into our DNA.

Look at the categories where tech was supposed to replace the professional:

Robo-advisors were supposed to kill wealth managers, yet assets under human management are at all-time highs.

Zillow and OpenDoor were supposed to eliminate realtors, but even with direct-to-consumer tech, 86% of all home buyers and 90% of home sellers still use a human real estate agent to handle their transaction. And, "iBuyers", instant algorithmic home buyers like Opendoor, account for less than 1% of total U.S. home sales, despite what their grift on socials proclaim. See below:

Medicine, law, and therapy have all seen massive tech upgrades too, yet no one wants an algorithm diagnosing a rare disease or representing them in court.

Bottom line is, when a decision is low stakes and reversible, people take the fastest, cheapest digital option. But when a decision is high stakes and permanent, like protecting a fifty year old mid-market business against catastrophic risk, 99 out of 100 times the insured wants a human absorbing that risk alongside them.

Tech bros treat trust as an efficiency problem to be optimized away. But, they miss the simple truth that high stakes decision making runs on relationships.

To be clear, I'm not arguing against technology either. I'm no Luddite. I'm a huge tech fanboy, actually. The debate, as I see it, isn't whether AI will transform midmarket commercial insurance, or whether brokers will exist.

The real debate, at least the one I think actually matters, the multi-billion dollar question of the next decade, is who actually wins the AI transition?

But, before we get into that...

First, serious regulation is coming.

And it's going to slow AI adoption down more than the tech crowd wants to admit. We're already seeing the people building the most powerful frontier models, Sam Altman included, publicly floating the idea that this needs to be paced.

When the builders themselves are asking for guardrails, that's a pretty clear signal that the runway to unsupervised AI doing everything is longer than the demo videos suggest. Insurance, a heavily regulated, trust-based industry handling people's health and financial security, seems to me like exactly the kind of place regulators are going to move first.

Second, we've watched brilliant, well-capitalized tech bros miss the future badly before.

Remember Zucks? He bet billions and failed on metaverse being the next big thing. People didn't reject the technology because it didn't work. They rejected it because humans, it turns out, don't actually want to strap a helmet to their head and live inside a simulation.

We like the real world with real people in it, even when a synthetic version is technically available and sexier. I think something similar plays out with AI and insurance. Even the smartest people in the room, with the most resources in history, still get the future wrong when they assume middle america thinks like their high-tech echo chamber.

Thirdly, CSRs, analysts, and anyone who's early or mid-career is genuinely screwed.

Now, that’s not neccessarily a new take, but I do think it will happen much faster than people expect. I say 2-3 years max. That work is exactly the kind of high-volume, pattern-based task AI is already good at, and there's no trust relationship protecting it the way there is with the producer holding the book.

The exception, I think, is the high-level AE, the ones with real judgment and client relationships of their own. My belief is they don't get replaced, but highly leveraged. Instead of managing a few million with a team under them, AI lets them manage a dramatically larger book solo, or close to it.

Ok, now on to who wins, who loses, and who has the biggest opportunity.

To understand who wins, I suggest we look at how the fundamental levers of business growth have changed.

Naval Ravikant frequently points out that the historical levers of growth were capital and labor. But in the modern economy, the new levers are code and media.

For decades, the mega-brokers, Aon, Gallagher, Marsh, Willis, and the like, built impenetrable moats using those two traditional levers. They hired thousands of Producers, account managers, and back-office staff to handle the processing and ops. And they used massive balance sheets to acquire, command carrier attention, and build corporate brand.

They assume that because they still hold billions in capital and thousands of employees, their dominance in commercial insurance is permanent. But in an AI-native world, those old levers carry massive diminishing returns and huge operational drag.

The ABC shops are agglomerations of hundreds of acquired agencies running on dozens of different legacy systems, bolted together by thick layers of corporate hierarchy, legal review, and bureaucratic inertia.

Having twenty thousand employees isn't an advantage anymore.

This is the Blockbuster versus Netflix problem, or the Walmart versus Amazon problem. It's rarely that the incumbent doesn't see disruption coming or lacks the capital to respond. It's that they have too many layers, too many employees to let go, and too much infrastructure pt pivot.

While the mega-brokers hold massive national accounts, I think their corporate scale becomes a disadvantage in the engine room of the middle market. Rebuilding a core operating system across a bloated corporate footprint looks to like a decade-long project that turns into a money pit.

They are essentially the Titanic. Too big to change course at the speed this technology demands.

Now, if the future belongs to code and media, logic would suggest that Silicon Valley should win this race easily. After all, code and media are their home turf.

AI founders start with a clean slate. They can build their own AMS systems, deploy code to automate everything, and leverage modern digital media to market their platforms faster and better than any traditional agency.

On paper, they hold the new levers. But in practice, my opinion is they hit a hard wall for one simple reason. Lack of actual human boots on the ground.

Code and media without deep domain specialization, carrier trust, and human to human relationships in real life are useless in the nuance of the middle market.

Think of how nuanced carrier access itself is. It's not three standard markets you can plug into. For most in ProducerLand, it's a scattered, regional, relationship-driven patchwork where appetite for a given class of business shifts carrier by carrier and underwriter by underwriter, on an on-going basis, ever evolving landscape.

Insurance is not a software problem to be solved. It's a human relationship game to be played.

You can deploy brilliant software, but that alone doesn't grant you exclusive carrier access. Code doesn't give you twenty years of trust with an underwriter who will stretch their appetite to write a tough casualty account. AI can't look the CEO of a mid-market manufacturing biz in the eye after a catastrophic loss.

When tech bros parachute into commercial insurance, they'll undoubtably find that winning simple, cooki-cutter business is easy, but winning and keeping complex commercial risk requires deep industry know-how and trust that cannot be prompt-engineered.

Sure, they will land some early wins via their incestuous VC circle of refferals. But, will that carryover across the broad swath of the true middle market? I doubt it.

Somewhere right now, somebody, or a handful of somebodys, are building the next behemoth agency.

But today they don't look like one.

Today, they're a small, nimble, independent shop marrying code, media, and a lean, vertical-focused, producer-led workforce with deep commercial insurance expertise, rock-solid carrier relationships, snd just the right amount of capital to pull it off.

As they stitch AI workflows together, parse their data out of legacy AMS platforms, and shed the excess support layers, their cost to service drops radically. They achieve margins never before seen in the mid market.

With the elimination of 99% of admin, their producers are free to produce more. But, I don't think organic growth is the main event. My bet is it becomes the secondary channel, running quietly in the background while, thanks to their astronomical margins, acquisition does the heavy lifting.

They go on offense, aggressively rolling up competing agencies and lifting out hyper specialized producers from the nationals and large regionals.

Think about the massive wave of agency consolidation over the last decade. Private equity rolled in, principals cashed out, and a huge chunk of millenial-aged producers, who didn't have ownership got stuck with slashed commissions, corporate bureaucracy, and zero say in their own future.

There is now a massive class of elite, high-performing producers who are pissed off, burnt out, and actively hunting for a better option. The agency that offers these producers super-human AI leverage, real autonomy, and a true seat at the table will easily recruit the best talent in the country.

I’m calling it now, within 3-5 years, the fastest-growing agencies won't look like traditional agencies. They'll look more like PE roll-ups with an AI ops layer and a recruiting pitch aimed straight at burnt-out producers.

So maybe the tech bros are right after all. AI is going to replace traditional brokers to some extent.

They just won't be the ones doing it. -TS