After two challenging years marked by rising costs and constrained resources, the insurance industry can look at 2025 with cautious optimism.
While recent economic pressures have driven up costs and delayed critical digital initiatives - as insurers diverted resources to meet immediate operational demands - a more stable economic outlook for this year offers hope. Stabilizing inflation and improving supply chains give insurers a chance to reignite transformation initiatives sidelined by the difficult economic environment. However, capitalizing on this moment requires sharp focus and strategic decision-making.
2025: A turning point?
Technologies like cloud platforms, Generative AI, and APIs are well-established tools for tackling evolving risks. However, optimal transformation outcomes not only depend on technology adoption but also on aligning these investments with sustainable long-term success.
The real challenge isn't in which technologies to adopt, but in identifying how to extract the most value from these investments. In this context, carriers face intricate issues such as competitive pressures, regulatory compliance, and evolving customer expectations, all while grappling with the complexities of integrating new technologies into legacy systems.
Misjudging the true cost of system adaptation, selecting technologies that hamper future adaptivity, or falling into vendor-lock-in can burden insurers with escalating costs, and limited agility to navigate future challenges. Worse, similar to the switch to modern legacy, they can necessitate yet another expensive large-scale transformation further down the line.
While industries like retail and banking have demonstrated the importance of building agile and resilient systems, the question remains whether carriers are truly equipped to achieve this. Decision-making is often heavily influenced by prevailing trends, whether AI, cloud, or specific platforms, raising the need for a deeper examination of how these technologies align with the needs of the business.
Navigating the cloud maze
Public cloud solutions promise scalability, cost efficiency, and seamless access to cutting-edge technologies. However, they also carry significant risks that insurers must navigate carefully.
Hidden costs often arise during migration, particularly when transitioning core systems. These costs can spiral further with the adoption of higher-level services, such as storage and AI compute, making a comprehensive cost assessment essential. The fact is, the cost of cloud is unpredictable and is driven by the target solution usage patterns. Many customers can easily run into two to three times the expected costs where savings were forecasted and are forced to re-evaluate their wholesale cloud migration strategies.
Additionally, many SaaS providers tie their offerings to specific public cloud platforms, limiting flexibility and transparency. This can hinder insurers' ability to optimize pricing or switch providers when necessary. The insurance regulator's view on the carrier's ability to gain control over its critical platforms further complicates top-tier carriers' approach to the cloud. A cloud-agnostic strategy - one that allows carriers to retain control of their infrastructure and data - is not just a preference but a necessity in an increasingly regulated and dynamic environment. This approach helps insurers meet compliance requirements, reduce dependency on single vendors, and maintain operational agility.
For example,
AI: A revolution deferred?
The potential of AI in insurance is vast, ranging from enhanced fraud detection to smarter risk modelling and personalized customer experiences. However, significant barriers remain, particularly around data security and governance. AI models often require access to sensitive data, creating a dilemma for insurers: How do they unlock the value of AI while safeguarding intellectual property, financial information, and proprietary analyses?
These challenges are compounded by the fragmented data systems many carriers still operate. Effective AI implementation requires robust governance frameworks and foundational investments in data integration and quality. Moreover, broader applications like automating claims or underwriting remain constrained by ethical concerns, regulatory scrutiny, and operational complexities.
For now, the transformative potential of AI is incremental rather than revolutionary. Insurers must focus on solving foundational challenges - such as creating secure and integrated data ecosystems - before they can fully realize AI's promise.
In addition, just like in a more generic cloud case, transactional use of public AI platforms may generate unpredictable costs. Therefore, the business case for deploying applications must be carefully considered and will likely depend on making them platform-agnostic and decoupled from any specific public cloud platform.
Key imperatives for insurers in 2025
As insurers prepare for the next wave of transformation, careful consideration will be essential. Here are some key questions to guide decision-making:
1. What are the long-term costs?
Understanding the cost of change - the ability to adapt rapidly to new demands without incurring disproportionate expenses - is imperative. Operating in a fast-moving landscape shaped by economic, social, and environmental shifts, it's critical to evaluate technologies not only on the cost of implementation, but also on their ability to support rapid evolution.
2. How flexible is the solution?
Solutions must be selected on the basis of flexibility and adaptability, i.e., the speed at which change can occur. It's not just about their ability to accommodate future needs but also how quickly they can respond to shifting demands and evolving circumstances.
3. What company owns the data and customer relationship?
In an increasingly multi-channel world, retaining control of customer data is essential for delivering personalized experiences and driving innovation. Insurers must ensure their solutions can integrate smoothly with partners and distribution ecosystems, while also safeguarding ownership of critical data and customer relationships.
4. What are the security and compliance implications?
Avoiding lock-in is key in light of regulatory requirements and cybersecurity. Insurers should evaluate whether a solution aligns with current and future compliance requirements, while safeguarding sensitive data.
5. Does the technology drive sustainable growth?
The true measure of a technology's value lies in its ability to create lasting impact. Insurers must assess whether each investment drives both immediate improvements and fosters long-term scalability, resilience, and innovation. They should resist the pull of crowd-driven trends and instead focus on a systematic evaluation of each technology's long-term implications.
