Shares of Verisk Analytics (VRSK +1.26%) have been cut nearly in half over the past year. The data analytics provider to the insurance industry has a target on its back as investors consider the impact artificial intelligence (AI) could have on its previously sturdy software moat.
For decades, Verisk has been a valuable partner to the property and casualty insurance industry. After divesting itself of its energy segment in 2023, the company is focused on providing the data and tools insurers use for underwriting and pricing, claims processing, and catastrophe modeling.
The market fears that AI will commoditize the company's core data assets and erode its long-held competitive advantages. If insurers use AI models to build their own in-house analytics systems, Verisk's lofty margins could be a thing of the past.
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A data moat built on scale and regulation
Verisk's edge comes from its vast proprietary databases, which include 39 billion statistical records and data on 143 million U.S. properties. This scale and the company's regulatory compliance experience would be difficult for any would-be new rival to replicate.
Verisk acts as a licensed "statistical agent" for insurance regulators in all 50 U.S. states. Insurers rely on its standardized data to create policy language and justify rate filings. This embeds Verisk's solutions deep within its clients' compliance and workflow processes, creating high switching costs.
AI could eventually automate basic underwriting tasks, reducing demand for some entry-level analytics, but complex catastrophe modeling remains specialized. More importantly, regulatory submissions require the use of standardized, auditable data, which is Verisk's specialty.
Verisk isn't waiting to be disrupted. The company launched its GenAI Commercial Underwriting Assistant and XactAI claims automation tools last year, integrating AI into its own platforms to enhance fraud detection and underwriting solutions.
Are Verisk's margins at the mercy of AI?
Some of the pressure the stock's been under is simply due to slowing growth as its AI-powered offerings have extended its sales cycle. The pace of revenue growth has slowed from 7.5% in 2024 to 6.6% in 2025. In 2026's first quarter, growth fell further to 3.9%, which management described as a "trough."
Yet the company's profitability remains strong. Its adjusted earnings before interest, taxes, depreciation, and amortization margin continues to hold above 50%, reaching 56% in the first quarter. This level of profitability helped the company generate $1.2 billion in free cash flow last year, with an impressive margin of nearly 39%.
Management has used the stock's weakness to return capital to shareholders, repurchasing $1.4 billion worth of shares in the first quarter and reducing its share count by nearly 3.5%. It also raised its dividend by 11% in conjunction with the Q1 report.
NASDAQ: VRSK
Key Data Points
Though the company grew free cash flow by nearly 30% last year, the stock currently trades for just 22 times this year's earnings estimates. For investors who have patiently waited for an opportunity to pick up shares on the cheap, the wait is over. While the impact of large language models on the insurance industry will take time to play out, I see it as an opportunity to hedge some of my bets on AI.
