AI could transform the economics of the global insurance industry, creating new opportunities for growth and finally upending long-established business models, according to McKinsey.

The consulting giant says industry structures have remained largely unchanged for the past two decades, and have proven resistant to disruption by forces such as globalisation and digitisation that have reshaped other sectors.

The industry has been “treading water” since 2005, with global premium growing almost 5% annually but profitability failing to keep pace. McKinsey says this reflects rising capital requirements, stubborn operating costs and limited productivity gains.

It adds the industry’s share of economic opportunity has not kept pace with growth in underlying risk. Less than 1% of global cyber costs are insured, and the global protection gap for natural catastrophes reached $US133 billion ($191 billion) last year.

McKinsey says AI could reverse those trends by helping insurers expand into emerging risk markets, improve underwriting and claims accuracy, reduce costs and accelerate innovation.

Related article: Industry urged to collaborate on ‘agent economy’ risk

It identifies AI liability, non-physical business interruption and rapidly expanding cyber risks as major growth opportunities.

Rather than simply paying claims after losses occur, insurers could increasingly be risk management partners through AI-enabled monitoring, real-time pricing and preventative services.

McKinsey also predicts AI will place pressure on traditional distribution models.

Insurance has long been “sold rather than bought”, with intermediaries dominating customer relationships.

But AI assistants acting on behalf of consumers could compare policies, monitor renewals and recommend alternative cover automatically.

The report says this could change who controls customer relationships, particularly in personal lines insurance, although brokers serving complex commercial and specialty risks are more likely to use AI to improve productivity than be displaced.