How the AI arms race could drive insurance M&A deals

The ability, or inability, of insurance companies to successfully adopt and scale artificial intelligence could be a driver of merger and acquisition activity over the next 12 months, said Mark Friedman, PwC partner and US insurance deals sector leader.

He spoke with InsuranceNewsNet on the heels of PwC’s 2026 Midyear US Deals Outlook report.

“I think, just in itself, there may be mergers or acquisitions just because companies realize they’re not big enough to be able to compete in this AI race,” Friedman said. “And if they’re acquired by someone larger, they have a better chance of survival long term.”

He said scale makes all the difference, and suggested companies without the resources to do so could “become an acquisition target.”

“If brokers’ business models could be disrupted materially, there’s a need — not an opportunity, a need — to transform those businesses,” Friedman said. “Scale is important because the investment is significant, and if you don’t have scale, it’s really difficult to go spend billions of dollars transforming your business model and investing in AI technology.”

As AI adoption remains a hot-button topic in insurance, Friedman said AI-driven activity in this way is expected “in the next 12 months, but more so as companies start to roll out real transformational change in their organizations, leveraging AI.”

“We may see mergers just as those that are falling behind and have the capital might look to accelerate their journey through an acquisition,” he said.

AI: opportunity, risk or threat?

According to Friedman, one of the key factors the insurance industry should pay attention to is how AI will disrupt the sector, not only on the brokerage distribution side but across the board.

“How will AI disrupt the sector? Is it an opportunity or a threat? And that varies. Then the next step is going to be looking at who the players are that are likely to benefit from the evolution of AI as we move into a more agentic world,” he said.

He suggested AI could introduce new risks into the market that the broader globe needs to determine how to manage. However, he also suggested insurance companies will become part of the solution.

“I don’t think there’s a view today that the insurance risk will no longer be insured; quite the opposite. I think we’re going to see new product offerings, and I think insurable risk will increase as a result of AI,” Friedman said.

He added that AI adoption “does not mean I no longer need homeowner’s insurance or companies no longer need business interruption insurance.

“AI will disrupt every sector. As I think about insurance companies – and I look out 10, 15, 20 years – I don’t think they will have less risk to insure; I think they’ll actually have more risk to insure,” he said.

The agentic workforce

Development of agentic workforces comprised of AI agents could also impact companies’ survival and potentially drive consolidation activity, Friedman said.

“From insurance companies’ perspective, the question will be who will win the race toward developing more of an agentic workforce and having agents operate the back-office operations of insurance companies, led by humans around the periphery, that will bring the costs down and will increase profitability exponentially,” he said.

However, he added that an agentic workforce would impact brokers “a bit differently” as there is “a possibility that we’ll live in a world in which there won’t necessarily be a need for brokers as much as there is today.

“If AI agents could replace what service brokers provide today, there’s risk that brokers will — I wouldn’t say become obsolete, but their share of the insurance revenue pie, for lack of a better term, could decrease. It could also increase, but it could decrease,” Friedman said.

As such, he said the question of “which brokers will win the race towards figuring out how to replace humans with agents and actually still capture that market share” becomes a significant consideration “a lot of the investors and brokers and agents, agencies today are looking at.”

“I would argue that it requires more consolidation, not less, because investment in AI is a hot topic. We’re going to see it come out in earnings. It’s going to impact tokenization. Brokers, insurance companies, everyone is dealing with that,” Friedman said.

Reluctance to outsource

Smaller, more niche insurance companies that are experimenting with AI may shift to becoming technology service providers for the industry if they can’t keep up with scale, Friedman suggested.

“People don’t really want to outsource to a competitor,” he noted. “I think that companies could end up becoming more of an AI service provider for the insurance industry, and I think they will likely become an acquisition target.”

He explained that insurance companies that want to “win the AI race” may prefer to buy out smaller organizations that have already “figured out how to transform an insurance company operating model, leveraging AI” rather than let the company become a consulting firm that could then provide consulting services to competitors as well.

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