CRC’s Koehn: Incumbent firms can use AI for margin improvement ‘pretty quickly’

By James Thaler

June 3 - (The Insurer) - CRC Group’s Garrett Koehn has said insurtechs leveraging AI have become “pretty ubiquitous” while incumbent firms such as CRC can use the technology to improve margins “pretty quickly”.

Koehn, who serves as chief innovation officer and president of executive lines at the wholesaler, said that companies such as CRC are using AI to target “low-hanging fruit” for easy areas of margin improvement.

The executive said firms have become more comfortable deploying AI internally for tasks such as data extraction and business process improvement as a way to enhance margins.

“I think a lot of our companies are looking at it as the low-hanging fruit. You're more comfortable doing some internal projects with it than external. Like, I haven't heard of a lot of companies yet deciding to deploy something that's customer-facing,” he commented.

"That's something we're all trying to navigate as we start working with and testing services. But we do see potential areas for margin improvement pretty quickly in things like policy checking.”

INCUMBENT FIRMS TARGETING ‘LOW-HANGING FRUIT’

Koehn said that after a trend of outsourcing certain processes to lower-cost countries, incumbent firms can use technology to onshore such processes at even lower costs.

“I think those will be some of the low-hanging fruit areas. Then it'll come and go into areas of customer-facing applications – that will come next, after we kind of get comfortable with what we're seeing in other spaces first,” he explained.

“I think anybody that's in the insurance brokerage space right now can look at our margins and go, ‘Hey, there's a potential for some major margin improvement here if we can deploy these things over the next few years.’"

Koehn said that “every broker is looking” at leveraging AI, and that firms such as CRC are prioritising “making sure that you do it well and do it right and take care of your customers along the way”.

“Some people are starting up new brokerages, solely trying to really leverage AI. And they're targeting 60% margins in a space that's like 20% to 30% to 40% margins; they think they could get there,” he observed.

However, Koehn expressed scepticism that such ventures could succeed, saying they would have to deal with the same challenges incumbents face around distribution, hiring and production.

“But we do, I think, all see the potential for it, and applications will come based on how you use things now. We have structured data that makes us able to probably do some things that others can't,” he noted.

“So, it just depends on what the use cases are. Because, again, AI is going to become ubiquitous; it's going to be in all these different areas of software.”

CONVERGENCE BETWEEN PE AND VC VALUATIONS

Koehn also suggested a greater understanding has been reached as valuations converge for firms backed by venture capital and private equity.

“For a number of years, there was just a big disconnect between where a private equity firm might value a company and where venture was valuing a company. And that hit particularly hard in the MGA space on the tail of a few companies that got public,” he commented.

“I think the first part of the problem was really around valuation expectations. What is a company worth that's doing $100 million of premium, but spent $80 million in customer acquisition costs the year before that to do that? Is that a billion-dollar company, or is it something else?

“Because if you're valuing it based off an EBITDA multiple, it's not worth a lot. If you're valuing it based on the revenue using some software multiple, then you might think it's worth a lot,” he explained.

NOT MUCH FROTH IN AI INSURTECH FUNDING CONDITIONS

Despite the hype around AI, Koehn said he isn’t seeing much “froth” in insurtech funding conditions.

“I haven't seen anything that perks me up and goes, ‘Well, that's kind of aggressive or dumb.’ I haven't seen the big deal where all of a sudden it was like they raised $120 million and they haven't done anything yet, or they don't have good backgrounds.

“I haven't seen anything from a valuation standpoint that makes me think, ‘That was kind of frothy.’ There's obviously a lot of money being thrown at it,” he explained.

“With AI, you have to look at it in a couple ways. One issue is that this area that you're targeting, once the AI model is built, the margins might squeeze out of it really fast,” he said, pointing to the expectation that the costs to deploy AI will rapidly decrease over a short time horizon.

Koehn said that “winners” in the AI arms race will be firms that combine a strong user interface and deep product line knowledge, adding that the “speed at which AI is improving right now is pretty impressive”.

“I do think that some of the lower-level remedial tasks are going to start being done pretty efficiently by good software companies with AI applications. That's going to free up our time for more production focused stuff, more valuable items,” he explained.

“But AI is going to definitely have a big impact on us, our margins, and on how we ultimately focus our time, interact with customers,” he concluded.