The Forrester report "Predictions 2025: Insurance" indicates that insurers are expected to pass rising claims expenses on to customers next year, a trend likely to enhance profitability and drive increased technology investments in innovation, data, artificial intelligence (AI), and automation.
However, the immediate benefits of AI are unlikely to be realized. The potential for AI to transform underwriting, claims, and customer experiences remains largely untapped, with only a small number of insurers likely to fully leverage AI by 2025.
While technology-driven product innovations, such as embedded insurance and usage-based insurance, may yield quicker results, substantial long-term benefits from AI are not expected in the near term.
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Forrester predicts an 8% increase in technology spending within the insurance sector in 2025. This growth will be driven by projects that enhance customer experiences, improve claims management, and optimize operational processes.
Insurers are expected to prioritize agility and faster time-to-value, leading to a reduction in extensive multiyear transformation programs.
Instead, more iterative developments, such as constructing APIs and microservices, will increase, it was suggested. Insurers will need to implement modular architecture to facilitate integration with both internal and external systems, adopt agile methodologies for rapid IT development and deployment, and enhance employee training through the use of data and analytics platforms.
Despite the growing interest in AI, fewer than 5% of insurers are expected to realize direct, tangible benefits from the technology in the upcoming year, such as deriving 10% of revenue from AI. Significant obstacles, including legacy systems, a shortage of AI talent, and challenges in integrating AI into existing processes, continue to impede progress.
While many insurers will invest in AI for internal automation, its full potential, particularly in enhancing underwriting and claims accuracy, will remain out of reach for most. Insurers are advised to concentrate on sourcing high-quality data, including unstructured data for generative AI applications, partnering with vendors to acquire AI expertise, and applying AI to specific use cases.
Embedded insurance is anticipated to see substantial growth, projected at 30%, particularly in personal lines. In Forrester’s Priorities Survey, 2024, 32% of global business and technology professionals in insurance indicated plans to invest more in embedded finance capabilities in 2025.
This model integrates insurance into other services at the point of need, enabling insurers to access new customer bases and enhance distribution.
While AI could augment embedded insurance through personalized offers and automated processes, the effectiveness of this approach depends on strategic collaborations between insurers and non-insurance entities involved in the embedded experience, it was suggested.
What are your thoughts on the future of technology investments in the insurance sector? Share your thoughts in the comments section.
