Will Sampo be AI-disrupted?
Sampo, Tryg, Allianz, Axa, Zurich, Aviva, etc. The share prices of European insurance giants are sliding today as well. A small piece of news regarding Lemonade and speculated impacts of AI triggered a downward spiral across the entire industry—an industry that, until now, has been considered a bastion of stability.
Following today’s “AI Disruption” segment by @Verneri_Pulkkinen, here are a few thoughts on the outlook for the insurance industry in general and Sampo in particular:
For Sampo and most insurance companies, digital and AI matters are certainly not a new thing. For example, Sampo has sunk about a billion euros into these systems over the last few years. Still, not all companies in the industry are this far along in the transition to the digital world, and “casualties” may emerge over time as productivity gains from AI create a gap between companies.
One of the most significant AI impacts on the insurance industry is market-psychological. Mere speculation about an AI shake-up has clearly increased uncertainty and diminished the industry’s former trump cards: stability and predictability. It is partly due to these attributes that the companies’ multiples and valuations have remained high. It may be that a slice of these multiples has already been “AI-disrupted,” even if the actual impact remains inconclusive.
However, this isn’t necessarily a purely negative thing for shareholders. While dividends remain steady, as announced in connection with the recent interim report, Sampo is de facto increasing the role of share buybacks in its profit distribution policy, at least slightly. Buybacks executed at a lower price are more productive for shareholders.
Another uncertainty factor may lie in the future. As Sampo shareholders know, the British insurance market with its Hastings unit is a digital bazaar where pricing dominates. The Nordic “rational” insurance market—even if at least as digitized—is based on customer retention and high-quality customer relationships. Could the surge of AI and its agents somehow and at some point shake up consumer behavior in Sampo’s main market? In a way we don’t yet grasp today?
On the other hand, insurance companies, if anyone, are processors of massive data sets. And it is precisely in these areas where the productivity benefits of AI are highlighted, especially as systems evolve. AI can act as a turbocharger for boosting underwriting results.
The rise of “Insurtech” companies that streamline the operations of insurance firms is a good example of this. For instance, ZestyAI counts Lemonade and Berkshire Hathaway’s insurance arms among its clients. (By the way, I wonder which company Sampo uses for this, @Mirko_Sampo_IR?)
All in all, the AI speculation in the insurance industry resembles the “Fintechs are coming to eat the traditional banks” hype from a few years ago. What happened? Fintechs are everywhere, but the industry giants—such as Santander, JPMorgan, Nordea—are fitter than ever. Mid-sized and legacy-style players have been squeezed between large banks skillfully utilizing scale and data advantages + expensive AI systems, and agile, often purely web-based fintechs.
My bet is that this will happen in the insurance industry as well. Sampo is in a strong position in this AI disruption race, but it needs to maintain quite an “AI sprint.”
Below is last week’s McKinsey analysis on the implications of AI for insurance companies for those who want to dive deeper.