A new cross-discipline industry trends report from Earnix and Market Research Group LLC, shows that insurers are still struggling with outdated, siloed technology stacks that hinder collaboration, innovation and business growth. They say this makes it difficult for departments to work together productively and it also delays decision-making.
The survey of 431 pricing, actuarial, underwriting, C-suite and technology executives from around the world was conducted in 2024. The results show an industry trying to come to grips with modernization. It found that two thirds expect to deploy artificial intelligence (AI) models within the next two years. At the same time, less than one-third presently have AI models in place today; 58 per cent of respondents say that implementing a rule change takes more than five months. For 21 per cent of respondents, the process takes more than seven months.
Legacy technology
“Today, the majority of insurers only use analytics to validate operational decisions, as opposed to generating optimal decisions,” the report states. (They say 52 per cent of insurers today report using analytics to validate operational decisions.) Entitled An industry at a crossroads: What insurers can do to get a valuable head start – and gain a new competitive advantage, the report adds that “for many insurers, their current legacy technology is impeding collaboration, innovation and growth.” Interestingly, they say less than 25 per cent of the executives they surveyed believed their current teams collaborated on a regular basis.
Most notable, the report states, was the high number of handoffs required between vital areas of insurers’ businesses, such as model development, simulation, the rules engine, internal reporting and documentation and external data availability. “These handoffs inevitably introduce errors and slow the organization’s ability to deploy new rating and pricing models in market. Not only does this problem persist, it may be getting worse. In 2022, 27 per cent of respondents reported that it took five to six months to implement a significant rate change; in 2024, that number jumped to 34 per cent,” they write.
Difficult to manage
They say the sheer complexity of the typical automated underwriting rules environment, where sometimes thousands of rules are in place, make overall underwriting systems difficult to manage, update and troubleshoot. “It can also lead to inconsistent decision-making, where minor updates in inputs can lead to significantly different outcomes that undermine risk management accuracy.”
They add: “one other possible obstacle could be insurers’ current approach to monitoring. Only seven per cent of insurers reported that they have implanted continuous, automated, intelligent monitoring to weigh the impact of their underwriting rule changes.”
More, they say just 13 per cent of executives say they perform ad-hoc monitoring, and even then, only when changes are having an impact on profitability. “The research highlights the fact that the majority of insurers are missing the opportunity to quickly adapt to emerging risk and changing market trends.”
Compliance concerns
Change, though, may be motivated by more than a desire to achieve operational efficiencies: The majority of survey respondents say compliance is a priority in the coming year, a continuation of a two-year trend researchers say could be a response to the high number of insurers paying compliance fines.
According to the research, 70 per cent reported that they will spend more or significantly more time on regulatory compliance in the coming year. Nearly half of insurers needed to pay regulatory fines in the previous 12 months. In Canada, that number drops to 38 per cent who admitted that they needed to pay regulatory fines last year.
“Now is the time to move beyond legacy technology – although this is certainly a difficult task,” the report’s researchers agree. The survey found 19 per cent of all respondents chose this as their top challenge in the year ahead, ranking the need for modernization as a 72 out of 100 in difficulty to fix. The only other area with a higher difficulty rating was talent acquisition, noted as being a top challenge faced by 10 per cent of respondents.
On artificial intelligence
“While AI is not new to insurance, the entire industry is clearly increasing its adoption of new, potential game-changing, AI-driven capabilities in many parts of the business,” the report states. “Insurers reported that they expected the impact of AI to nearly double from the last year to the current year, and more than triple in the year ahead. In all, it adds up to a nearly six-fold increase in insurers’ perception of AI’s impact on their business in just a three-year timeframe.”
They say there is potential to move beyond the current state where analytics are used to validate decisions to a state where analytics are used in virtually all processes to generate optimal decisions. “To meet this objective, insurers will continue to grow their investments in third-party data in the next three years, in some cases, increasing current levels by more than 20 per cent,” they write.
“Rigid architecture of these legacy systems stifles innovation by limiting the ability to implement modern solutions,” they state. “The inability to modernize their tech stacks not only impacts operational efficiency but also hinders the development of new products and services that could meet changing customer demands and drive business growth.”
