Insurance companies are significantly increasing their technology spending. Image: Shutterstock
Insurance companies are significantly increasing their technology spend as the industry shifts from legacy systems to modern cloud architecture, with the aim of improving experiences for customers, employees and distributors.
According to rough industry estimates, information technology (IT) spending now represents nearly 10 percent of total business costs. Over the past five years, insurers’ IT spending has grown substantially, driven by digital transformation initiatives to meet changing consumer demands.
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The growth in technology investments is mainly focused on modernizing platforms and improving online customer experiences. There has also been a marked increase in spending on artificial intelligence (AI) and machine learning technologies for underwriting, claims processing and customer service automation, according to industry experts.
“Tech spend currently accounts for 10 to 15 percent of spend, compared to 5 to 6 percent five years ago,” said Krishnan Badrinath, head of technology and innovation at Tata AIG General Insurance.
“Cloud is an area where significant spending is taking place. Over the past two years, AI has been gaining ground and many companies, including ours, are exploring generative AI. We are all investing heavily in AI,” Badrinath added.
Industry insiders suggest that the integration of Internet of Things (IoT) technologies, particularly in telematics and health monitoring, has further increased insurers’ technology spending to better assess risks and improve service delivery.
The adoption of cloud computing has also led to substantial investments in cloud infrastructure and services, improving scalability and flexibility. Insurers are also investing in advanced analytics tools to gain deeper insight into customer behavior and risk assessment.
Sharad Mathur, managing director and chief executive officer of Universal Sompo General Insurance, said: “In the insurance sector, technology spend typically represents 5 to 12 percent of total business spend. This percentage varies depending on factors such as company size, technological maturity, strategic priorities and specific initiatives. Insurers undergoing significant digital transformations and modernizations may find their technology spend trending towards the high end of this range or even exceeding it during peak investment phases.”
“We plan to increase our IT investments as part of our long-term strategic initiatives. On average, we expect to grow our technology spend by 15 to 20 percent annually over the coming years to remain competitive and meet evolving customer expectations,” he added.
Additionally, companies have indicated that the increase in digital transactions has led to increased investments in cybersecurity to protect sensitive data and ensure regulatory compliance.
Recently, there was a data breach at Star Health and Allied Insurance, where sensitive data from 31 million customers, totaling an estimated 7.24 terabytes, was put up for sale on the messaging platform Telegram.
However, some experts believe that despite substantial investments, insurers are lagging behind the dark web in terms of spending.
“Cybersecurity investments need to be scaled up given the growing threats from dark web hackers. The investments on the dark web can far exceed what we do to manage cybersecurity. Although serious incidents have occurred in the recent past, insurance companies have taken this issue seriously and significant investments have been made to protect customer data. Things are getting better every day,” said Amit Roy, partner and leader of insurance and related businesses at PwC.
First publication: September 29, 2024 | 1:59 p.m IST