Overcoming Insurance Challenges With Technology and Innovation

Insurance is one of the industries undergoing a speedy digital transformation through technology and innovation.

According to a recent report from Newsfile Corp., by 2025, global insurance technology (InsurTech) investments could surpass $362 billion.

The report further indicates insurance companies’ growing interest in data analytics and artificial intelligence (AI) solutions. Cloud computing investments, on the contrary, are on the decline, with only 21% of respondents sharing plans to move their data and software to the cloud in the next few years.

When it comes to artificial intelligence, large corporations are more enthusiastic about this cutting-edge technology, believing they are in a better position than smaller players, despite the fact that the rise of software-as-a-service (SaaS) products and foundation AI models has significantly reduced the barrier to entry for small and medium-sized businesses.

Unsurprisingly, limited IT budgets and concerns about new technology integration with legacy systems continue to be the most significant barriers to innovation in the insurance sector, cited by 53% and 52% of respondents, respectively.

In this article, a team of innovation analysts from Symfa, a trusted InsurTech software development company, will investigate these and other challenges impeding insurance transformation projects and provide a high-level plan for innovation implementation.

Top 5 Barriers to Technology and Innovation in Insurance

Insurance companies turn to technology to improve employee productivity, reduce operating expenses, achieve compliance with evolving regulations, and supercharge the customer experience.

To achieve these goals, the following technological issues must first be addressed:

• Persisting reliance on legacy software. 68% of insurers consider their legacy systems the biggest hurdle to digital transformation. Yet, thousands of companies continue using proprietary applications from decades ago, despite the fact that IT costs for such software tend to be 41% higher compared to modern systems. Outdated policy administration, claims management, underwriting, accounting, and customer relationship management (CRM) systems are often isolated and interface poorly with novel applications. As a result, the data stored in such systems remains siloed, preventing companies from using advanced analytics tools, including those powered by AI and generative AI technologies.
• Data security and privacy risks. In the data-driven economy, insurance companies must be cautious about how they use sensitive data and adhere to multiple regulations. These include the General Data Protection Act (GDPR) in Europe, the California Consumer Privacy Act (CCPA) in the United States, anti-money laundering (AML) and know your customer (KYC) regulations, and numerous cybersecurity restrictions and best practices. Additionally, there are industry-specific regulations, such as the Health Insurance Profitability and Accountability Act (HIPAA), whose violation fines could range from a few hundred dollars to more than two million dollars (and counting). Any new technology implemented by insurance firms must therefore comply with the aforementioned regulations, slowing its adoption.
• Lack of IT expertise. By 2030, up to 85 million tech jobs worldwide could go unfilled due to the lack of necessary skills among the candidates. Meanwhile, according to a recent Gartner survey, 64% of IT executives believe a lack of tech talent is the most significant barrier to implementing novel technology in enterprises. Not surprisingly, the insurance industry suffers from the same problems. The number of insurance employees aged 55 or older has grown by 74% in the last ten years. The older generation often struggles with new technology—specifically, business intelligence (BI), data analytics, and AI-powered augmented analytics tools. Yet, 42% of insurance companies have no plans to train employees on the new technology in the near future, while 38% of companies describe such plans as “being in their infancy.”
• Resistance to change. In the previous section, we highlighted the aging insurance workforce as a major obstacle to implementing novel technology solutions. Besides lacking technical skills, the aging employees may be hesitant to adopt new software, having relied on Excel spreadsheets for decades. The phenomenon, known as “resistance to change,” stymies digital transformation across all industries, causing up to 70% of innovation projects to fail. Despite the fact that 32% of insurance executives rank change management as a top priority, the industry is doing little to address this issue.
• Constrained innovation budgets. Although InsurTech investments are on track to outperform earlier forecasts in 2024, increasing by 5% rather than the expected 3.7%, only 10% of companies are willing to spend money on technology that will drastically transform their operations. The main goal for the remaining 90% of businesses is to continue doing business as usual while keeping older systems in a usable state.

Tips to Spur Innovation in Insurance

To address the top five barriers to innovation in the insurance industry, a comprehensive strategy that takes into account both the technical and human aspects of change is required.

Here’s what can be done to tackle these challenges:

• Develop a roadmap for gradually transitioning from legacy systems to modern platforms, either on-premises, cloud-based, or hybrid. While serving as a blueprint for the entire transformation initiative, your plan should clearly define the objectives and scope of work for pilot projects, with clear timelines and step-by-step rollouts. It is also essential to conduct a cost-benefit analysis to assess efficiency gains from modern systems and get buy-in from executives.

• Establish a robust framework to ensure compliance with GDPR, CCPA, HIPAA, and other regulations relevant to your sector. This framework should cover regular audits and updates, along with employee training and a data management strategy.

• Actively recruit new talent with sufficient expertise in modern technologies. This can be done through strategic partnerships with third-party companies, as well as HR agencies and educational organizations. Alternatively, you could seek a custom software engineering company with a proven track record of InsurTech projects.

• To combat employees’ reluctance to use modern technology, you need a structured change management strategy spanning effective communication and stakeholder engagement. This strategy should clearly communicate the benefits of using novel technology to your workforce and provide incentives for employees to join training programs.

• Align your IT investments with your company’s strategic objectives, prioritizing higher-value solutions. To better control spending, utilize project management and budgeting tools. Once again, collaborating with third parties, including InsurTech startups and software engineering companies, could help you speed up innovation without bearing the full cost of developing new software in-house.

It should be noted that this high-level plan necessitates commitment at all organizational levels as well as a clear vision of the desired future outcomes.

When implementing the strategy, it is critical to strike a balance between the technical and human aspects of digital transformation changes. This way, you could ensure that employees are supported and empowered throughout the transition.

The barriers we mentioned in the previous section can be overcome with careful planning and execution, paving the way for a more efficient, secure, and innovative insurance industry.