Treasure Chest: AI Risks To Insurance Brokers

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This story features AUB GROUP LIMITED, and other companies.
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FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Today's idea is about AI threats to insurance brokers as new AI-digital tools launch overseas.

By Danielle Ecuyer

FNArena’s Treasure Chest reports on money making ideas from stockbrokers and other experts.

Whose Idea Is It?

UBS

The subject:

As the risks of AI disruption create fear and indiscriminate selling across multiple sectors, UBS has analysed the potential risks of disintermediation in Australia’s insurance broking industry.

More info:

As AI tech disruption fears cascade across sectors, insurance and wealth management have been the latest to be swept up in the market’s indiscriminate ‘sell now, ask questions later’ mood.

UBS is quick off the mark after Tuesday’s sell off in insurance broker shares, with AUB Group ((AUB)) down -6% and Steadfast Group ((SDF)) down -10%, outlining why the Australian insurance and insurance broking industry retains considerable competitive advantages and barriers to entry.

New AI tools raise the stakes on disruption

While the narrative around AI disintermediation in insurance distribution is not new, UBS argues the risk has moved rapidly back into the spotlight following overseas announcements of two new AI driven tools, Tuio and Insurify, which provide consumers with tailored quotes and enable purchases directly through the app.

For context, Tuio is a digital first insurtech, based in Germany, and is one of the first insurers to facilitate AI driven conversational quoting. It uses AI to generate real time, personalised insurance quotes rather than traditional broker or comparison site workflows.

Insurify is an online powered insurance comparison and marketplace applying predictive modelling and data analytics to deliver real time personalised quotes for auto, home, life, pet and renters’ insurance.

UBS highlights AI tools can significantly improve product comparisons, with the greatest longer term disintermediation risk for brokers in more standardised, “homogenised” products, namely personal lines and the smaller end of commercial (SME), often referred to as BizPak (standardised small business insurance package).

UBS estimates homogenised personal lines represent 11% of Steadfast Group’s network gross written premium and 9% for AUB Group’s ex international, while Steadfast’s micro and small SME BizPak exposure is around 25% of network gross written premium.

Larger and more complex risks still require broker expertise, particularly where there is less standardisation of coverage and terms and conditions, and UBS argues distribution, rather than underwriting, is the component most exposed to disruption.

Unlike the UK, where general insurers have supported online comparison websites, Australia’s major insurers have generally refrained from what UBS describes as commoditising brands via price comparison portals.

The acquisition of motor clubs by major insurers has also reinforced vertical integration in the domestic insurance sector, bringing distribution, customer loyalty, claims infrastructure and data into the insurer ecosystem.

UBS suggests this has reduced the appetite for distribution around new challenger brands, with existing challengers (Youi, Auto & General, Hollard) having scaled up to 21.7% of the home and motor market, growing gross written premium at 20%, with a core operating ratio of 89.4% in FY25.

In a research report issued earlier this week, Jarden broadly concurs with UBS, citing disintermediation at the wholesale end of the market as unlikely, while the retail and SME segments are comparatively more vulnerable where products are standardised and price sensitive.

For brokers, the risk is less redundancy and more margin pressure, with Steadfast generating an estimated 55% of earnings, ex associates, from retail broking and AUB around 46%. Jarden estimates Steadfast has circa 78% of its broking business in retail or SME, with AUB around 45%.

More complex risk management across industrial and aspects of professional indemnity and liability are viewed as more resilient due to the bespoke nature of the product.

Overall, Jarden suggests around 35% of Steadfast’s earnings are (potentially) at risk and circa 16% for AUB, assessed over a five year earnings horizon.

Possible AI benefits, ratings and targets

Countering the risks, brokers’ incumbent technologies such as Steadfast’s SCTP and Insight and AUB’s BizCover can use AI applications to improve efficiency. AI is viewed as a longer term headwind, yet stock valuations have been markedly de rated, with price to earnings multiples now sitting at a deep discount, circa -31% to the historical 10 year average, against general insurers trading at around a 9% premium, Jarden highlights.

UBS prefers AUB and has upgraded the stock to Buy from Neutral post the sell off with a $35 target price, citing Steadfast’s higher potential exposure to AI risks via the retail and SME segment.

UBS also notes AUB is not just an aggregate broker, as its BizCover direct business, around 7% of group profits, could benefit if more SMEs buy direct, while its specialty risk business Tysers is more complex, relationship driven and harder to automate or commoditise.

Concerns over AI come only weeks after AUB launched a $400m equity placement and a $40m share purchase plan, at $29.40 per share, to fund the acquisition of a 95.9% stake in Prestige Insurance, a diversified UK insurance group.

Ord Minnett views this acquisition as aligned with management’s aim to transition the success of the Australian broking business model offshore over the next three to five years, with FY26 guidance reaffirmed at the announcement. Ord Minnett has a Buy rating and a $35.26 target.

Jarden has an Overweight rating on AUB with a $38.20 target, while daily monitored brokers at FNArena have a consensus target price of $38.42, with three Buy equivalent ratings, including UBS and Ord Minnett. Macquarie remains under research restriction.

Late in 2025, private equity firm EQT, along with CVC Asia Pacific, approached AUB with a takeover proposal at $45 per share subject to due diligence. After a month the consortium advised AUB it would not be moving to a binding proposal.

Jarden also has an Overweight rating on Steadfast with a $6.80 target. FNArena’s daily monitored brokers have a consensus target of $6.148, with three Buy equivalent ratings and two Hold equivalent ratings.

Ahead of the 1H26 results for Steadfast on February 26, Macquarie expects FY26 guidance to remain unchanged but sees risk of an underlying downgrade as the CFO transition and ongoing redundancies could mean restructuring costs are excluded from guidance.

The broker does not expect further CEO succession commentary but anticipates an update on the CFO appointment.

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