Insurance companies are significantly boosting their technology spending. Image: Shutterstock
Insurance companies are significantly ramping up their technology-related spending, including on artificial intelligence (AI), as the industry seeks to move towards the modern Cloud architecture to enhance the online experience of customers, employees, and distributors.
According to rough industry estimates, information technology (IT)-related expenses now account for nearly 10 per cent of the companies’ expenses. In the last five years, IT spending by insurers has seen robust growth, driven by digital transformation initiatives of companies to meet evolving consumer demands.
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The growth in tech investments is focused on modernising platforms and enhancing online customer experiences. There has also been a marked rise in spending on AI and machine learning technologies for underwriting, claims processing, and customer service automation, industry experts said.
“Tech spending as a proportion of expenses is 10 to 15 per cent currently. It was around 5 to 6 per cent five years ago,” said Krishnan Badrinath, Head for Technology & Innovation, Tata AIG General Insurance.
“Cloud is one area where a good amount of spending is being done. In the last two years, I would say that AI has picked up well and a lot of companies, like us, are trying hands-on generative AI. We are all pumping funds into AI,” Badrinath added.
Industry insiders suggested that the integration of Internet of Things (IoT) technologies, particularly in telematics and health monitoring, has further increased tech spending of insurers to better assess risk and enhance service offerings.
The adoption of Cloud computing, they said, has prompted significant expenditures on Cloud infrastructure and services, improving scalability and flexibility. Insurers are also investing more in advanced analytics tools to gain deeper insights into customer behavior and risk assessment.
“In the insurance industry, technology spending generally represents about 5 per cent to 12 per cent of total company expenses. This percentage can vary depending on factors such as company size, technology maturity, strategic priorities, and specific initiatives,” said Sharad Mathur, MD & CEO, Universal Sompo General Insurance.
Insurers undergoing significant digital transformations and legacy modernisation may find their tech spending leaning toward the higher end of this range or even exceeding it during peak investment phases, he said.
“We plan to enhance our IT investments as part of our long-term strategic initiatives. On average, we anticipate increasing our technology spending by 15-20 per cent annually over the next few years to remain competitive and meet evolving customer expectations,” he added.
The rise in digital transactions has also prompted companies to invest more in cybersecurity to protect sensitive data and ensure regulatory compliance.
A data breach recently at Star Health and Allied Insurance servers reportedly put up for sale on the messaging platform Telegram sensitive data of 31 million customers, amounting to an estimated 7.24 terabytes.
According to some experts, despite the substantial amount of investment by insurers, it is still not enough when compared to the investment in the dark web.
“The investment in cyber security needs to be pegged up seriously in view of the ever-increasing attacks from hackers of the dark web. Maybe, the investments in the dark web far outdo what we do in managing cyber security,” said Amit Roy, Partner & Leader – Insurance & Allied Businesses, PwC.
“While there have been some severe incidents in the recent past, insurance players have been taking this aspect seriously with major investments made to protect the data of their customers. I would say things are getting better every day,” Roy said.
First Published: Sep 29 2024 | 1:59 PM IST
