Insurers Accelerate AI Adoption, Face Compliance and System Modernization Hurdles

The Earnix 2024 Industry Trends Report reveals a pivotal shift in the insurance industry’s reliance on advanced technology, especially AI, as insurers pursue increased operational efficiency, data-driven decisions, and customer engagement. However, the report also highlights significant challenges insurers face in realizing the full potential of these advancements. Compiled from responses from over 400 global insurance executives across regions including North America, Europe, and Australasia, the report shows insurers at a crossroads between emerging technology opportunities and complex operational hurdles.

AI Adoption on the Rise
A key finding of the report is the sector’s rapid shift towards real-time AI models. Over two-thirds (70%) of executives plan to implement AI-driven solutions for real-time predictive analytics within the next two years, aiming to improve accuracy in pricing, claims processing, and risk management. AI promises to provide insurers with tools to not only validate but also optimize critical decisions across functions. However, only 30% of companies currently use AI models, underscoring a substantial gap between ambition and actual implementation. Insurers are thus racing to scale AI within their operations to maintain competitive advantage.

Legacy System Modernization Challenges
Despite enthusiasm for AI, insurers face significant barriers due to reliance on outdated legacy systems. The report indicates that 49% of respondents feel they are behind on modernization efforts. These systems often require multiple handoffs between departments, slowing decision-making and increasing the risk of operational errors. For instance, 58% of insurers report that it takes over five months to implement a rule change, with a quarter of these taking more than seven months. This dependency on legacy infrastructure not only hinders efficiency but also stifles collaboration and limits insurers’ agility in adapting to market demands.

Increased Compliance Focus and Financial Impact
Regulatory compliance is another prominent challenge, as insurers face increasingly stringent requirements globally. Reflecting on recent trends, the report notes that over half of insurers faced fines or issued refunds due to compliance issues within the past year. As a result, 70% of executives anticipate spending more time on regulatory compliance activities in 2024. U.S. insurers, for example, are grappling with the National Association of Insurance Commissioners’ (NAIC) evolving standards, while European companies face the extensive demands of the Solvency II Directive. For many insurers, compliance activities are essential to avoid costly fines and uphold consumer trust. However, this compliance burden adds additional strain to already resource-constrained operations.

The Road Ahead: Integration, Collaboration, and Innovation
To overcome these barriers, insurers will need to accelerate technology integration and collaboration across functions. The report emphasizes that outdated and siloed technology systems are among the greatest impediments to fostering cross-functional innovation. Almost half of the surveyed executives identified their technology stack as a limiting factor in innovation and growth. Without integration between pricing, underwriting, and claims management, insurers are missing opportunities to deliver personalized, responsive customer experiences.

The report concludes that insurers that modernize quickly and adopt integrated, AI-driven technology will be best positioned to lead the industry. Achieving this vision requires a significant shift away from legacy systems, streamlined compliance frameworks, and a commitment to fostering innovation across teams. With these changes, insurers can unlock new efficiencies, strengthen compliance, and respond more swiftly to market dynamics, positioning them as industry leaders in a rapidly evolving environment.