Insurance companies enhance tech spending to meet evolving customer needs
Insurance companies are significantly boosting their technology spending. Image: Shutterstock
Insurance companies are significantly boosting their technology spending as the industry shifts from legacy systems to modern cloud architecture, aiming to improve experiences for customers, employees, and distributors.
According to rough industry estimates, information technology (IT) expenses now account for nearly 10 per cent of total company costs. Over the past five years, IT spending by insurers has grown substantially, driven by digital transformation initiatives to meet evolving consumer demands.
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The growth in tech investments is primarily focused on modernising platforms and enhancing online customer experiences. There has also been a marked rise in spending on artificial intelligence (AI) and machine learning technologies for underwriting, claims processing, and customer service automation, according to industry experts.
“Tech spending currently accounts for 10 to 15 per cent of expenses, compared to 5 to 6 per cent five years ago,” said Krishnan Badrinath, head of technology and innovation at Tata AIG General Insurance.
“Cloud is an area where significant spending is happening. In the past two years, AI has gained traction, and many companies, including ours, are exploring generative AI. We are all investing heavily in AI,” Badrinath added.
Industry insiders suggest that integrating Internet of Things (IoT) technologies, particularly in telematics and health monitoring, has further increased insurers’ tech spending to better assess risk and enhance services.
The adoption of cloud computing has also led to substantial investments in cloud infrastructure and services, improving scalability and flexibility. Insurers are additionally investing in advanced analytics tools to gain deeper insights into customer behaviour and risk assessment.
Sharad Mathur, managing director and chief executive officer, Universal Sompo General Insurance, said: “In the insurance industry, technology spending typically represents 5 to 12 per cent of total company expenses. This percentage varies depending on factors such as company size, technology maturity, strategic priorities, and specific initiatives. Insurers undergoing significant digital transformations and legacy modernisation may find their tech spending leaning towards the higher 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 spending by 15 to 20 per cent annually over the next few years to remain competitive and meet evolving customer expectations,” he added.
Additionally, companies have indicated that the rise 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 belonging to 31 million customers, totalling an estimated 7.24 terabytes, was reportedly put up for sale on the messaging platform Telegram.
However, some experts believe that despite substantial investments by insurers, they lag behind the dark web in terms of spending.
“The investment in cybersecurity needs to be scaled up, considering the growing threats from dark web hackers. Investments on the dark web may far exceed what we do to manage cybersecurity. While there have been severe incidents in the recent past, insurance players have been taking this issue seriously, with significant investments being made to protect customer data. Things are improving every day,” said Amit Roy, partner and leader, insurance and allied businesses, PwC.
First Published: Sep 29 2024 | 1:59 PM IST