Brown & Brown expects AI’s real benefits in years three, four and five
Brown & Brown reported second-quarter revenue of $1.7 billion, up 30.4%, largely reflecting the acquisition of Accession Risk Management. Organic revenue declined 0.7%, but increased 0.7% when contingent commissions were included.
Adjusted EBITDAC margin declined one percentage point to 35.7%, while adjusted earnings per share increased 3.9% to $1.07.
Here are the key takeaways from the earnings call.
AI is a long-term project
Brown & Brown recently announced partnerships with Anthropic, McKinsey and Accenture to expand its use of AI across sales, placement, underwriting and support functions.
CEO Powell Brown cautioned against expecting immediate results.
“The benefits of AI in my mind and new technology will truly be seen in years 3, 4 and 5. That does not mean we’re not going to see some benefits before then but I want everybody to understand that’s how we think about it.”
The focus is on customers and employees—not headcount reduction
Brown & Brown isn’t presenting AI primarily as a cost-cutting exercise. The company wants the technology to improve customer outcomes and help employees work faster and more effectively. The company expects AI to shorten cycle times, increase productivity and eventually support both organic growth and margin expansion.
“We do not believe technology will replace the need for risk advisers, brokers or delegated underwriters rather, we believe it will enhance our capabilities to make them more effective in their roles. Our technology strategy is aligned with our goal to be the leading global provider of risk management solutions.”
There is no incremental AI spending—for now
Brown & Brown is funding its AI work by redirecting existing technology resources from maintaining the business toward data, analytics and innovation. Management said current spending can be absorbed within its existing margin expectations. That could change if the company finds it can implement AI across the organization faster than planned.
“As of now, we’re not calling out any incremental technology spend. Based on our previous investments and the acquisition of Accession, we’re able to redirect resources from running the business towards data analytics, innovation and AI. If facts change and we need to highlight an incremental investment in technology, we will communicate our approach and expectations like we did in the past when we made larger technology investments.”
Brown & Brown wants proof that AI creates value
The company has expanded its value management office to measure the results of individual AI projects using defined performance indicators. Brown & Brown is also prepared to abandon projects that don’t deliver.
Catastrophe property rates are down 15% to 35%
Cat property pricing declined between 15% and 35% during the quarter, roughly matching the first quarter. Capital continues to flow into the market, with underwriting supply exceeding demand. Brown said some coastal property rates in Southeast Florida have returned to 2017 levels.
Management would not call the bottom, but said it could take between $100 billion and $150 billion of insured losses to stabilize or reverse the market.
“There’s going to continue to be a lot of competition with property in the near to intermediate term.”
Casualty remains a different story
Primary casualty and professional liability rates generally increased around 5%, while excess casualty continued to face upward pricing pressure.
Workers’ compensation and non-cat property were generally flat to down 5%.
Brown & Brown expects the market to remain divided during the second half: excess casualty prices should continue rising, while cat property prices continue falling.
Organic growth is expected to improve
Retail generated organic growth of 1.5%, or 2.5% including contingent commissions. Specialty Distribution declined 3.5%, or 1.6% including contingents.
Specialty’s result was reduced by nearly two percentage points because approximately $10 million of program revenue was delayed. Most of that revenue is expected to be recognized in the third quarter.
For the second half, Brown & Brown expects organic growth excluding contingents of:
- 1.5% to 2.5% in Retail.
- 2% to 4% in Specialty Distribution.
Departures to a startup broker could cost $50 million to $60 million
Brown & Brown expects the departure of employees who joined an unnamed startup broker to reduce full-year revenue by between $50 million and $60 million, including the impact of lost business and incentive commissions.
The second-quarter adjustment to organic revenue was $18 million.
The departures temporarily benefited margins by approximately 30 to 50 basis points, although that benefit will decline as Brown & Brown replaces the employees.
Brown said the company expects to refill most, if not all, of the affected positions.
Accession contributed $410 million
Accession generated approximately $410 million in second-quarter revenue, with margins in line with expectations.
Brown & Brown continues to expect the acquired business to produce between $1.7 billion and $1.8 billion in annual revenue. The company also reaffirmed its expectation of realizing $30 million to $40 million in integration synergies this year.
Going forward, Brown & Brown will stop reporting Accession’s growth separately.
Buybacks rank ahead of acquisitions
Brown & Brown spent approximately $500 million on share repurchases during the first half of the year. Its capital priorities are hiring talent to support organic growth, repurchasing shares, reducing debt, investing in technology and pursuing selective acquisitions.
The company acquired six small agencies during the quarter but emphasized that future deals must add specialized capabilities rather than scale alone.
