Australia | Nov 03 2025
Australia's general insurance sector faces its biggest threat in decades as AI-powered 'agentic commerce' threatens to bypass established brands entirely, forcing billions in defensive technology spending.
- AI forces defensive spending on insurers as agentic commerce threatens brand moats
- Insurers face large defensive CAPEX programs to preserve market share
- Insurance brokers vulnerable as AI agents replace human advice
- QBE Insurance structurally insulated with less than 5% exposure to commoditised retail products
- Suncorp's cloud migration and process redesign positions it ahead in the architectural race
By Valery Prihartono
The End of the Australian Insurance Moat
For decades, Australian general insurers enjoyed returns 480 basis points superior to UK peers by successfully resisting digital comparison sites and leveraging brand strength. That competitive advantage is becoming technologically obsolete.
The shift to generative AI introduces a new threat vector that makes previous digital disruption attempts look tame: agentic commerce. This isn’t just another chatbot or comparison tool; it’s AI autonomously managing the entire buying process for customers, ignoring brand preferences and loyalty entirely.
Global payment giants Visa and Mastercard have already launched open-architecture platforms supporting automated product comparison and purchasing in other sectors. Their business models, built on transaction volume, scale easily into insurance with minimal overhead.
The industry’s traditional pushback –“terms and conditions on websites don’t allow automated purchasing”– may prove irrelevant.
Sustained affordability crises could compel regulators to support consumer-benefiting AI purchasing tools, potentially accelerating the collapse of existing moats around established brands.
Profit Exposure: Where the Pain Will Hit Hardest
The financial stakes are enormous, with exposure concentrated in commoditised insurance lines where AI agents can most easily compare and switch products.
Insurance Australia Group and Suncorp in the Firing Line
Insurance Australia Group ((IAG)) and Suncorp Group ((SUN)) face the most direct threat in Australia. Approximately 70% and 60% of respective profits relate directly to highly exposed Home and Motor insurance products.
These commoditised lines –where policy features are largely standardised and price becomes the primary differentiator– are precisely where AI agents will operate most effectively.
When customers can delegate insurance purchasing to an AI agent that instantly compares hundreds of policies based on coverage and price, brand loyalty becomes irrelevant.
Both insurers must now prioritise defensive technology spending in these areas, not for growth or margin expansion, but purely to avoid market share erosion.
Insurance Brokers
The potential threat for brokers such as Steadfast Group ((SDF)) and AUB Group ((AUB)) could be many times larger. Their business models rely on SME customers valuing broker advice and being willing to pay for intermediation.
As customers grow more comfortable receiving guidance from Large Language Models, the high-cost broker distribution model comes under direct attack. Why pay brokerage fees when an AI agent can provide instant policy comparisons, explain coverage differences, and automatically renew or switch policies based on predetermined criteria?
Global precedents reinforce this risk. Acrisure, based in the US, has already reduced hundreds of roles linked to automating accounting functions, setting a painful precedent for the Australian intermediated sector.
QBE’s Structural Advantage
QBE Insurance Group ((QBE)) stands apart from ASX-listed peers with its focus on bespoke commercial and specialty risks. Less than 5% of group profitability is estimated at risk from commoditised agentic comparison.
This structural insulation gives QBE a crucial advantage: it can focus AI spending on offensive capabilities –improving underwriting efficiency and risk selection– rather than purely defensive market share protection.
QBE’s Cyber Underwriting AI Assistant has already demonstrated a 65% reduction in submission review time, delivering genuine efficiency gains rather than just preventing market share loss.
The Defensive CAPEX Imperative
Facing this threat, Insurance Australia Group and Suncorp have launched significant technology transformation programs.
These aren’t growth investments — they’re the price of survival.
Claims Transformation: The Margin Defense
Claims expenditure represents 60-70% of premiums, making it the largest target for efficiency gains.
Global benchmarks prove the return on investments (ROI) potential: Aviva’s motor claims overhaul generated estimated savings of circa US$82m annually, primarily through a -65% drop in customer complaints and a -23-day reduction in complex case assessment time.
Another global insurer, Compensa, achieved -73% cost efficiency across its claims process using AI-driven automation.
AI systems use OCR and natural language processing to convert unstructured documents –quotes, invoices, assessments– into structured data, facilitating faster processing and improved fraud detection.
This capability is prompting some insurers to re-engage in vertical integration of Home and Motor repairers to maximise AI-driven workflow benefits and quality control.
Operational Efficiency: The OPEX Opportunity
Operating expenses account for 20-30% of premiums, with the biggest opportunities in eliminating repetitive manual administration and streamlining call centers.
Suncorp’s approach demonstrates the correct priority: analysts emphasise realised savings depend far more on restructuring workflows (circa 70% of value) than on the AI model itself (10% of value).
This is why Suncorp’s stated strategy of fixing end-to-end processes before AI optimisation is critical.
Internal analysis shows some 51% of IAG’s Gross Operational Costs (2018) related to employee expenses. This large administrative spending base is the primary target for streamlining.
Suncorp’s “Smart Knowledge” platform has already demonstrated success, lowering call pass-through rates by -51% in its call center by enabling frontline staff to resolve more queries without escalation.
For brokerage organisations, cost reduction has shifted from an optional efficiency to –effectively– a survival necessity.
The automation of accounting, policy administration, and even basic advisory functions forces Steadfast and AUB Group to cut costs just to remain viable as their value proposition erodes.
Dynamic Pricing: The Competitive Requirement
Achieving dynamic, personalised pricing using richer data –telematics, smart-home sensors, comprehensive claims history– represents the ultimate weapon against commoditisation.
But there’s a catch: realising full AI pricing potential demands large-scale capital deployment for cloud migration and complete process redesign.
Such significant CAPEX programs for core system replacement are becoming unavoidable for the insurance sector.
The debate is no longer about optional spending; the sector pendulum has shifted towards the mandatory price for competitive relevance.
The Architectural Mandate: What Success Requires
If insurers want to scale AI effectively and avoid technological obsolescence, analysts have identified a specific architectural blueprint:
- Single Core System: All systems (pricing, claims, policy administration) must be from a single provider
- Unified Data Architecture: Data consolidated into a single point (data lake)
- Full Cloud Migration: Everything must operate in the cloud, with all legacy on-premises costs eliminated
Suncorp, having reported significant cloud migration progress, appears structurally ahead in this architectural race domestically.
This positioning matters because companies lacking this foundation will struggle to deploy AI at scale, regardless of investments made.
Regulatory Headwinds Add Hidden Costs
The sector’s transformation challenge extends beyond technology. The Financial Accountability Regime (FAR) commenced for insurers in March 2025, cementing formal compliance burdens around AI governance.
Regulators APRA and ASIC expect rigorous governance, control, and risk management systems for all AI applications. ASIC has focused explicitly on algorithmic bias risk, warning AI acceleration risks “unintended discrimination” in pricing or product access, violating existing consumer protection laws.
This regulatory scrutiny forces insurers to balance dynamic pricing models with strong ethical governance, imposing necessary compliance costs that moderate potential profitability gains. Companies that skimp on governance to accelerate deployment risk regulatory intervention and reputational damage.
Investment Strategy: The Bifurcated Market
AI adoption is forcing a critical bifurcation in the ASX insurance sector.
Success hinges on architectural and cultural transformation; reliance on legacy competitive advantages spells structural de-rating.
QBE: The Structural Winner
QBE Insurance remains the most structurally defensible major ASX insurer. Its low exposure to retail commoditisation allows its AI strategy to focus on offensive gains; specifically underwriting efficiency and improved risk selection in bespoke commercial markets.
The company’s Cyber Underwriting AI Assistant delivers genuine productivity improvements without the defensive spending required by retail-focused peers.
QBE can use AI to grow profits and market share, not just defend existing market positions.
Discount the Intermediated Model
Applying a structural discount to insurance brokerage stocks seems but a logical consequence. Their core value proposition is highly vulnerable to disintermediation by LLMs, resulting in unavoidable margin pressures.
Broker’s necessary “survival CAPEX” will generate diminishing marginal returns as operational efficiency rapidly becomes industry standard.
The question isn’t whether AI agents will disrupt broker distribution — it’s how quickly it will happen.
Favour Architectural Readiness
Investment preference should favour insurers demonstrably addressing core technology mandates over those reporting anecdotal AI wins without fundamental transformation.
Suncorp’s publicly reported cloud adoption and commitment to holistic process redesign before AI deployment suggest a more advanced structural position compared to peers pursuing piecemeal initiatives.
IAG’s progress is less clear from public disclosures thus far, creating execution risk around whether the insurer can complete the necessary architectural transformation before market share erosion accelerates.
The Battle Ahead
The Australian general insurance sector is entering a period of forced transformation unlike anything since deregulation.
The comfortable returns built on brand strength and comparison-site resistance are becoming obsolete as AI agents threaten to commoditise customer relationships entirely.
The winners will be those who successfully execute a complete architectural transformation –single core systems, unified data platforms, full cloud migration– while simultaneously maintaining profitability through the transition.
The losers will be those who pursue incremental AI initiatives without fundamental process and system redesign, or who underestimate the speed at which agentic commerce will reshape customer behavior.
For investors, the key insights are clear:
- QBE’s business mix provides structural insulation from the worst disruption while enabling offensive AI deployment
- Brokers face existential pressure as AI agents replace human intermediation in commoditised segments
- Architectural readiness matters more than AI pilot programs; a complete transformation is required for scale
- Defensive CAPEX is unavoidable for retail-focused insurers, potentially representing a multi-year margin headwind
The battle for Australian general insurance will be won not on brand strength or traditional competitive advantages, but on the speed and efficacy of digital execution.
The high cost of transformation is simply the price of entry into the AI-enabled insurance market.
Those who hesitate or pursue half-measures risk joining the ranks of disrupted incumbents across other industries who discovered too late that legacy advantages do not protect against technological obsolescence.
Note: AUB Group recently confirmed it has received an unsolicited non-binding indicative proposal by private equity suitor EQT to acquire 100% of AUB via scheme of arrangement at $45 cash per share.
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