How life insurers are investing in technology

What technologies are capturing the attention and budgets of life insurers in North America? 

In 2024, top business objectives—including cybersecurity, digital acceleration, and innovation—are among the factors shaping life insurers’ approaches to their investments in fintech. As detailed in the Celent report Dimensions: Life Insurance IT Pressures & Priorities 2024: North American Edition, life and annuity company technology executives, across individual and group lines, are carefully evaluating how their business and investment plans align with their IT needs. Findings, based on a survey of life insurance company chief information officers, are highlighted below. 

Striking a balance with investment priorities

Growth continues to impact IT spending across the board, with insurers showing strong optimism for the future of business. This trend illustrates that the sector hasn’t just recovered from the economic challenges in the post-pandemic years, but that the sector is using tech investments as a driver for success. At the same time, insurers are focusing on cost containment and cost reduction, meaning that there’s more control over spending than was the case in the past three years.

Insurers aim to strike a balance between legacy (maintenance of core systems) and innovation (the pursuit of new technologies). Nearly half (47.4%) of IT budgets go toward the maintenance of and enhancements to existing systems, some new and some legacy. Insurers are also implementing the investments they’ve made in recent years. 

With an investment strategy that aims to meet dual goals, it’s clear that the insurance industry is aiming to strengthen foundational systems while simultaneously embracing the transformative possibilities enabled by emerging technologies. How an IT budget is allocated across top activities (maintaining/upgrading systems, implementing new systems, transformation/innovation, greenfield projects, and everything else) varies by the size (small, midsize, large) of the insurers.

Spending forecasts

IT spending by North American life insurers fell back to pre-pandemic levels, reflecting a focus on cost containment and a decrease in IT budgets, as 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. 

Though 2023 IT budgets declined, as compared to 2022, budgets are projected to rise in 2024 for most insurers, though a third of insurers will either decrease their budget or leave it flat. Across insurers of all sizes, the average projected increase this year is 8.9%; the estimated 2024 average budget is 4.6% of premiums. 

Budgetary allocations are largely focused on implementing and enhancing recent purchases. This emphasis on maintaining current systems shows as the largest proportion of CIOs’ budgets. 

Highlights include:

Technologies that improve the user experience and boost agent efficiency are a 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 back office components, underwriting is the area seeing the most significant enhancements. Policy administration and servicing (PAS) systems continue to be a focus of investments, but not at the levels seen in the past two years. Repetitive payment systems are being placed by new digital capabilities for billing.Investments in data and analytics are primarily driven by the need to maintain and enhance existing systems, with data management/MLOps/open data integration being the area of focus with the most significant enhancements.Cloud deployments are set to expand across all systems, as the value propositions of cloud (accessibility, scalability, and security) are compelling to many CIOs. A third of large carriers are significantly expanding the use of cloud for core backend systems and more than 4/5 of midsize insurers are expanding the use of cloud for data and analytics, while small insurers are less likely to be expanding their use of cloud than are their larger peers.

One noteworthy area of increased spending is cybersecurity. Jumping to first place from fourth place a year ago, cybersecurity is the top priority driving investments. 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 that was dedicated to cybersecurity in 2023 (6.9%) doesn’t reflect the importance of addressing cyber risks. Celent estimates that spending on cybersecurity will increase by 8.6% in 2024, as insurers 

look for the correct tools to fight new threats. Nothing has worked perfectly to curb ever-evolving cyber threats. More investment will be necessary.  

Embracing artificial intelligence

Generative AI (GenAI) and large language models (LLMs), certainly a hot topic in the past year, aren’t yet actively implemented by North American life insurers, though most plan to use them are developing use cases for these technologies. GenAI/LLMs technologies are only in production for 5% of respondents, but 75% have allocated budget to GenAI/LLM projects that are either in the research phase or planned for 2024, suggesting the active plans to pursue these technologies. 

The top areas of perceived value for GenAI and LLMs in life insurance include servicing 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, on the property & casualty insurance side of the industry, as reported by my colleagues, image recognition or geospatial analysis is the AI use case with greatest current adoption, illustrating how the broader insurance industry is embracing the AI technologies and use cases best suited to their specific needs.

As insurers plan to embrace GenAI use cases, they must carefully evaluate multiple aspects related to both structured and unstructured data: ease of access to the data, data quality, data/info stores, and auditability. Robust plans for data infrastructure and governance are necessary to address any weaknesses and to make the data viable for effective GenAI initiatives. 

Meeting today’s needs and the needs of the future 

Insurers must make thoughtful investments in technology (whether existing or new) in order 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-driven solutions—will be essential for successful implementations.