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Which technologies are North American life insurers investing in and finding appealing?

Top corporate priorities in 2024 will include innovation, digital acceleration, and cybersecurity. These will also influence how life insurers will approach their fintech investments. Technology leaders at life and annuity companies, both individually and collectively, are closely assessing how their business and investment objectives mesh with their IT requirements, as reported in the Celent research Dimensions: Life Insurance IT Pressures & Priorities 2024: North American Edition. The following highlights findings from a survey conducted among chief information officers of life insurance companies.

Finding equilibrium in investment priorities

Growth is still impacting IT spending overall, and insurers are optimistic about the industry’s state. This trend shows that the industry is embracing tech investments as a catalyst for success, demonstrating that it has not just recovered from the economic hardships faced in the years following the pandemic. Insurance companies are concentrating on cost containment and reduction at the same time, which means that there is more control over expenditure than there was during the previous three years.

The goal of insurers is to achieve a balance between innovation (pursuing new technologies) and legacy (maintaining basic systems). A little under half of IT spending is allocated to the upkeep and improvement of current systems, both new and old. Additionally, insurers are putting their recent investments into practice.

It is evident that the insurance business is pursuing a dual-purpose investment strategy to uphold established institutions and take advantage of the disruptive opportunities presented by new technologies. The distribution of an IT budget across the primary activities—greenfield projects, innovation, and transformation, deploying new and upgraded systems, and maintenance and upkeep of existing ones—depends on the company’s size (small, midsize, or large).

Projected expenditure analysis

North American life insurers’ IT spending has returned to pre-pandemic levels, indicating a reduction in IT budgets and an emphasis on cost management in comparison to the preceding three years. Chief information officers are closely reviewing IT spending and how it fits with priorities and economic conditions after years of digital investments.

While 2023 IT budgets were lower than 2022 budgets, most insurers anticipate raising their 2024 budgets; nonetheless, one-third of insurers plan to either cut or freeze their budget. The average predicted increase for insurers of all sizes is expected to be 8.9% this year, with an average budget of 4.6% of premiums expected by 2024.

Many budgetary resources are going toward improving and implementing recent purchases. Most CIOs’ expenditures are devoted to sustaining their present systems.

Some notable points are as follows:

• Insurance companies prioritize investing in technologies that enhance the customer experience and increase agent productivity. Policies and distribution partners’ policyholder portals, distribution management, and illustration/quoting systems are among the front-end components for which significant expenditures are anticipated.
• The most notable improvements are being made to the back-office functions of underwriting. While not at the same levels as the previous two years, policy administration and servicing (PAS) systems remain a major area of investment. New digital capabilities for billing are replacing repetitive payment mechanisms.
• The primary motivation behind investments in data and analytics is the necessity to preserve and improve current systems, with the most notable improvements being in the areas of data management, MLOps, and open data integration.
• Because so many CIOs find the cloud’s value propositions—security, scalability, and accessibility—to be enticing, cloud deployments are expected to increase across all systems. Small insurers are less likely than their bigger counterparts to be expanding their use of the cloud, with a third of major carriers significantly increasing their use of the cloud for fundamental backend systems and more than four out of five midsize insurers using it for data and analytics.

Cybersecurity is one notable area where spending has surged. Cybersecurity has risen from fourth place to the top this year, with spending being driven mostly by this priority. Today, over 90% of insurers rank cybersecurity as a major or high concern, mostly because of the increasing risks posed by ransomware and computer breaches. The amount of the budget allocated to cybersecurity in 2023 (6.9%) does not commensurate with the importance of tackling cyber hazards, notwithstanding the claimed priority. According to Celent’s projection, the amount spent on cybersecurity would rise by 8.6% in 2024 as insurers search for the right instruments to combat emerging risks. To completely stop the ever-evolving cyber threats, nothing has been successful. There will be a need for additional investment.

Welcoming the era of artificial intelligence

Large language models (LLMs) and generative artificial intelligence (GenAI), though they have been a hot topic for the past year, are not yet being actively employed by life insurers in North America, but many of them plan to use them and are developing use cases for them. While just 5% of respondents claimed that GenAI/LLM technologies are now being produced, 75% stated that they had budgeted for GenAI/LLM projects that are either planned for 2024 or are already in the research stage. This suggests that these technologies are being actively pursued.

In life insurance, the areas where GenAI and LLMs are regarded to be most valuable are customer experience (CX), onboarding, marketing, code development, servicing and operations, underwriting, and rating. Two AI application cases that are now being used in many different industries are automated data science pipelines and speech-to-text processing. Relatively speaking, based on reports, the AI use case that the property and casualty insurance side of the business is now adopting the most is geographical analysis or picture recognition. This demonstrates how AI technologies and use cases that are most suited for their specific needs are being adopted by the insurance sector.

The ease of access to the data, the quality of the data, the data/information repositories, and the auditability of the data are all factors that insurers must carefully consider as they prepare to adopt GenAI use cases. Ensuring the data is viable for GenAI activities and addressing any shortcomings requires well-thought-out plans for data infrastructure and governance.

Addressing present and future demands

To meet their immediate and long-term requirements, insurers must carefully consider their investments in technology, whether it be new or old. Successful implementations will require a strategic evaluation of fast shifting factors, ranging from the possibility of AI-driven solutions to the impact of cyber threats.