What technologies are attracting the attention and budgets of life insurers in North America?
In 2024, key business objectives – including cybersecurity, digital acceleration and innovation – are among the factors shaping life insurers’ approaches to their fintech investments. As detailed in the Celent report
Finding a balance with investment priorities
Growth continues to impact IT spending across the board, with insurers demonstrating strong optimism about the future of business. This trend illustrates that the sector has not only recovered from economic challenges in the post-pandemic years, but that the sector is using technological investments as a driver for success. At the same time, insurers are focusing on cost containment and reduction, meaning there is more control over spending than there has been in the last three years.
Insurers aim to achieve a balance between legacy (maintenance of central systems) and innovation (the search for new technologies). Almost half (47.4%) of IT budgets go to maintenance and improvements to existing systems, some new and others legacy. Insurers are also implementing the investments they have made in recent years.
With an investment strategy that aims to achieve dual objectives, it is clear that the insurance sector intends to strengthen fundamental systems while, at the same time, embracing the transformative possibilities offered by emerging technologies. The way an IT budget is allocated between the main activities (systems maintenance/updates, implementation of new systems, transformation/innovation, greenfield projects and everything else) varies according to the size (small, medium, large) of the insurers .
Spending forecasts
North American life insurers’ IT spending fell to pre-pandemic levels, reflecting a focus on cost containment and a decrease in IT budgets compared to the previous three years. After years of digital investments, chief information officers are carefully monitoring IT spending and how it aligns with priorities and economic conditions.
While IT budgets for 2023 have decreased compared to 2022, budgets are forecast to increase in 2024 for most insurers, although a third of insurers will decrease their budget or leave it unchanged. Among insurers of all sizes, the average increase projected for this year is 8.9%; the estimated average budget for 2024 is 4.6% of premiums.
Budget allocations largely focus on implementing and improving recent purchases. This emphasis on maintaining current systems represents the largest proportion of CIO budgets.
Highlights include:
- Technologies that improve the user experience and increase agent efficiency are the focus of insurers’ spending. Significant planned investments for front-end components include those for policyholder portals (for policyholders and distribution partners), distribution management, and illustration/quoting systems.
- Among the back office components, underwriting is the area that shows the most significant improvements. Policy administration and maintenance systems (PAS) continue to be a focus of investment, but not at the levels seen over the past two years. Repetitive payment systems are being replaced by new digital invoicing capabilities.
- Investments in data and analytics are primarily driven by the need to maintain and improve existing systems, with data management/MLOps/open data integration being the focus area with the most significant improvements.
- Cloud deployments are set to expand across systems as the cloud’s value propositions (accessibility, scalability and security) appeal to many CIOs. A third of large carriers are significantly expanding their use of the cloud for core backend systems and more than 4/5 of midsize insurers are expanding their use of the cloud for data and analytics, while small insurers are less likely to expand their use of cloud. cloud than its larger peers.
One noteworthy area of increased spending is cybersecurity. Jumping from fourth place a year ago to first place, cybersecurity is the top priority driving investment. More than 90% of insurers now cite cybersecurity as a top or significant priority, due in large part to growing threats from breaches and ransomware. Despite the stated priority, the proportion of the budget dedicated to cybersecurity in 2023 (6.9%) does not reflect the importance of addressing cyber risks. Celent estimates that
look for the right tools to combat new threats. Nothing has worked perfectly to counter ever-evolving cyber threats. More investments will be needed.
Embracing artificial intelligence
Generative AI (GenAI) and large language models (LLMs), certainly a hot topic last year, have not yet been actively implemented by North American life insurers, although most plan to use them and are developing use cases for these technologies. GenAI/LLMs technologies are in production for only 5% of respondents, but 75% have allocated budget to GenAI/LLM projects that are in the research phase or planned for 2024, suggesting active plans to pursue these technologies.
Key areas of perceived value for GenAI and LLMs in life insurance include services and operations, code development, underwriting and rating, and customer experience (CX)/onboarding/marketing. AI use cases that are already in production across multiple lines of business are automated data science pipelines and speech-to-text processing. In comparison,
As insurers plan to adopt GenAI use cases, they should carefully evaluate several aspects related to structured and unstructured data: ease of data access, data quality, data/information storage, and auditability. Solid plans for data infrastructure and governance are needed to address any deficiencies and make data viable for effective GenAI initiatives.
Meeting the needs of today and the needs of the future
Insurers must make thoughtful investments in technology (existing or new) to support their current and future needs. Taking a strategic approach to evaluating rapidly evolving considerations – from the impact of cyber threats to the potential of AI-based solutions – will be essential to successful implementations.
