An insurer that AI cannot harm is Marsh and McLennan

The risk management and insurance services company Marsh & McLennan has been misvalued by the market

Kaylie Pferten advises astute investors to purchase now.

Major US brokers including Willis Towers Watson, Aon, Marsh & McLennan, and Arthur J. Gallagher & Company. dropped by 8% to 11% in a single day after it was revealed that ChatGPT's owner, OpenAI, had approved the first AI app with an insurance focus created by US intermediary Insurify. The tool from OpenAI was released one week after Claude, the Anthropic model, also released a new plug-in to automate financial, legal, and sales analytical tasks.

In addition to this obsolescence risk, investors have had to attempt to account for the increasing difficulties of a so-called "soft" insurance market. The insurance market has been in a "hard" phase since 2017, during which profits have surged and prices have been rising. But when the market shifted from hard to soft two years ago, prices began to level out and then decline. For Marsh & McLennan (NYSE: MRSH), the hard market was excellent. Shares of the broker and global intelligence firm increased by over 200 percent between 2017 and the start of 2024, but since peaking in the first half of 2025, they have decreased by about 28 percent.

There had to be a decline. Because the insurance industry is so cyclical, Marsh was trading at a multiple of roughly 22 times forward earnings going into the soft cycle, which left little to no margin for error. According to UBS, the shares are currently trading at only 16.8 times forward earnings following the re-rating. There's a strong case to start purchasing shares at this level, even though it's still a little high for this point in the market cycle.

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Marsh & McLennan is a significant player in the insurance industry.

One of the biggest risk management and insurance services companies in the world, Marsh Inc., is a division of Marsh & McLennan. Guy Carpenter, a risk-management and reinsurance expert, Mercer, Oliver Wyman, and Jardine Lloyd Thompson Group (JLT), a London-based broker of insurance, reinsurance, and employee benefits, are also owned by the group.

Marsh Risk, the group's largest division, brought in £14.4 billion in revenue in 2025. Mercer and Marsh Management Consulting rank second and third, respectively, with £6.2 billion and £3.6 billion in revenue. Over £9.8 billion is generated annually by the consulting industry as a whole. £17.3 billion was made by the risk-management and insurance companies, including Marsh Risk.

An important part of the insurance market is Marsh Risk. Brokers frequently purchase pools of insurers and reinsurers to underwrite large, complex risks. The buyer of insurance enjoys the security of several parties supporting the contract, and the insurers appreciate that they are not unduly exposed to a single risk. Marsh Risk facilitates this process. Additionally, the company handles the claims process, which can be expensive and time-consuming for the majority of large insurers and reinsurers.

In order to remove the risk from the project owners' balance sheets, Marsh, for instance, negotiates insurance coverage with insurers while developers pay an insurance premium for a clean hydrogen insurance facility. With customized insurance coverage, investorsin this case, the insurersprovide capital investment for the projects while reducing their risk exposure. Marsh is in charge of the claims procedure for insured incidents. Costs are reduced for all parties involved thanks to the single platform.

A world in which AI interferes with this process is difficult to envision. It will undoubtedly aid in streamlining the paperwork, but managing transactions between important stakeholders will always require the Marsh brokers' human touch. This company generates a lot of cash and is very profitable. Last year, the insurance division recorded a 32 percent adjusted operating margin, while consulting recorded a 21.1 percent margin. Operating cash flow accounted for £5.3 billion of the £7.3 billion in adjusted operating income. A measure of profit for each dollar invested in the business, the company's return on invested capital is 25%.

How Marsh is using AI.

Although Marsh's consulting division is the true target of the AI threat, the company says it is taking precautions against it. According to the company's first-quarter results, Oliver Wyman's AI Quotient, which assists businesses in deploying and scaling AI tools, has recommended up to £50 billion in AI investment. As a result, Oliver Wyman's revenue increased by 6% during the first quarter, outpacing the group's 4% top-line growth.

To cut expenses, management is implementing these tools internally. With AI-powered document processing, it has achieved a 20% increase in efficiency and is aiming to save £400 million over a three-year period. An estimated one million hours of the team's time have been saved in the first year thanks to other tools. By the end of the decade, UBS predicts that this could contribute to Marsh's return on invested capital reaching almost 30%.

Price chart for Marsh & McLennan shares.

Therefore, the business is discreetly using the technology to improve its own services while the market worries about the risk AI poses. This implies that the company is an AI play, if nothing else.

People and technology are Marsh's most valuable assets, and although the company spends a lot on both, its total capital expenditure needs are minimal. Consequently, the majority of operating cash is converted to free cash flow. The management's goal is to give investors the maximum amount of money back. Management approved a £6 billion share buyback at the end of the previous year, of which £750 million was used in the first three months. Marsh was purchasing its own shares while the market was selling.

Cash flow is the most appealing aspect of the company. According to UBS, the shares are trading at a forward free cash-flow yield of 6.2 percent for 2026, 6.7 percent for 2027, and 8.1 percent for 2030, even though they may not appear particularly cheap on a price-earnings basis.