Making deft use of data—from information collected by flood sensors at a manufacturing plant to a driver’s photographs of a crumpled car panel—has become a prime source of competitive advantage for insurance carriers. Zettabytes of data, much of it unstructured and behavioral, now flows from connected cars, houses, factories, and human bodies.
The challenge for insurers is not handling more data; rather, it’s figuring out how to tap and analyze new forms of data and having the right infrastructure and approach to extract useful insights. For example, customers can now submit auto accident photos to a claims unit for the first notice of loss. Those photos will inform better decisions only if the insurer has a robust artificial intelligence (AI) model to process and evaluate the images and integrates the information into the core claims-handling and customer-facing workflows. Expanding amounts and formats of data exacerbate the challenge. For instance, while many firms now handle image data, they are only starting to incorporate crash-detection signals from telematics into core claims-handling processes.
Such advanced data analytics is difficult, if not impossible, to orchestrate in a legacy technology stack, as monolithic core systems cannot handle higher-frequency data that comes in different modes. Moreover, orchestration only works when data becomes an asset of the entire enterprise, not contained within the silo of a single department. Select claims data, for example, is valuable to the underwriting team, so it needs to be accessible, with the right controls in place.
Making this shift is a major undertaking: Insurers need to both modernize the technology and plan how to make productive use of data. And the executives responsible for modernizing technology cannot keep asking the board for more funding to build or buy new technology while at the same time trying to prove the return on investment for what is already launched.
High stakes for modernizing technology
Overhauling technology has become especially salient for carriers looking to address emerging opportunities. As insurable perils such as unprecedented climate events and cyber events intensify and diversify, carriers have an opening to provide customers with prevention and risk mitigation services, going well beyond recovery services and reimbursement for damages. Succeeding in these more complex service offerings requires carriers to adopt not only new software and platforms but also flexible infrastructure capable of ingesting new forms of data. It also requires a shift from being reactive to proactive in operations. Flexible technology systems will allow insurers to move in and out of markets or dial up or down their appetite for risk.
Yet, while many insurers have started to modernize their technology systems, most struggle to extract value, and they typically experience long, costly overhauls. They’re also weighing how to sequence technology investments while managing cost and profitability goals.
The stakes are high, as modernizing technology effectively can unlock significant value. Among property and casualty carriers, for instance, our analysis shows that attaining technology leadership—which we define along the dimensions of breadth of data and analytics, modern software adoption, cloud maturity, and IT spending as a percentage of operating expenses—can create up to 3 percentage points higher premium growth, 5 percentage points lower expense ratio, and 8 points higher customer Net Promoter ScoreSM (a reliable metric of customer loyalty) than the rest of the pack (see Figures 1 and 2).
Insurance carriers that are technology leaders have outinvested in several key areas
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