In separate reports last week, AM Best and Morgan Stanley analyzed P/C insurance industry expense ratios, with one reporting a 2.4-point drop over the past decade and the other projecting another potential 2.0-point decline by 2030.
While both reports highlight the impact of AI and automation in driving down expenses, the AM Best report, which gives the historical take, also flags drops in rent expenses related to increased remote work as a factor.
Analyzing underwriting ratios of the 2014-2024 timeframe, AM Best noted that while the loss ratio declines, including a 5.4-point drop in the U.S. property/casualty insurance industry loss from 2023 to 2024, drove improved results in recent years, looking over the entire 11-year period, the expense ratio fell to 25.3 in 2024, compared to 27.7 in 2014.
The overall 2.4 percentage point decrease in the U.S. P/C insurance segment’s long-term underwriting expense ratio was primarily driven by a 1.9-point decrease in the other acquisition expenses ratio and a smaller, 0.5-point decrease in the general expense ratio, AM Best said in a Jan. 6, 2026, special report, “Lower P/C Insurer Expenses Boost Underwriting Results.”
(Editor’s Note: Neither the commission expense component nor the tax expense component of the expense ratio changed much over the study period. The AM Best report does not include 2025 results.)
The overall improvement is “reflective of the progress the P/C industry has made via increased digitalization, and the use of automation and advanced technologies,” the AM Best report states.
Addressing the biggest part of the drop—the 1.9-point decrease in other acquisition expenses—the report notes that the “shift from a five-day-a-week office commitment to hybrid or fully remote work policies has lowered the proportion of other acquisition expenses attributable to rent expense.”
The Morgan Stanley report is solely focused on go-forward impacts of AI on expense ratios and operating margins. Titled “AI (01000001 01001001): How the New Industrial Revolution Is Reinventing Insurance,” the Morgan Stanley report includes separate analyses of potential earnings growth driven mainly by the back-office implementation of artificial intelligence for the insurance broker, P/C insurance carrier and life insurer segments.
The Morgan Stanley analysis starts with a higher P/C insurance expense ratio than the AM Best report ends with—30.4 for 2026 vs. AM Best’s 25.3 for 2024—likely resulting from a different universe of carriers regularly followed by Morgan Stanley (mostly commercial, specialty and reinsurance companies). For the Morgan Stanley cohort, the Wall Street analysts project an expense ratio of 30.5 for 2030 if the carriers do not use AI, and 28.5 after using AI—2 points or 200 basis points lower.
There’s a similar impact on operating margins, the analysis shows.
For the year 2030, the Morgan Stanley report reveals a post-AI operating margin of 17.4 percent, compared to 15.6 percent, absent AI, across P/C insurance carriers—an improvement of nearly 180 basis points.
(Editor’s Note: More precisely, the analysts calculate 176 basis points of operating margin improvement from AI. Operating margins in the report are expressed as returns on total revenue rather than premiums or operating earnings per share.)
In dollars, the report shows a $9.3 billion jolt from AI use in 2030, with projected operating income rising from $82.7 billion without AI to $92.1 billion after AI. Morgan Stanley refers to the 11 percent jump as “operating income uplift.”