A new industry survey reveals that insurance carriers are poised for significant AI adoption over the next two years.

However, many admit to lagging behind in their broader technology modernization efforts. According to Earnix's 2024 Industry Trends Report, which surveyed over 400 global insurance executives, 70% of insurers expect to deploy AI models that make predictions based on real-time data within the next two years, while less than 30% currently have such capabilities in place.

AI's impact on operational decisions is expected to nearly triple the year ahead, marking a dramatic acceleration in adoption across multiple business functions. This rapid adoption reflects the industry's growing recognition that AI-powered analytics are essential for driving innovation, improving operational efficiency, and maintaining competitive advantage in today's market.

However, the path to AI implementation faces significant hurdles. Nearly half of insurers admit they are behind schedule in transitioning from legacy systems and fully modernizing their operations. This technological debt creates challenges across multiple fronts, from regulatory compliance to operational efficiency. Most concerning, many insurers' current technology stacks are ill-prepared to support meaningful innovation in vital areas such as product development, AI-powered analytics, and more profitable pricing and rating strategies.

The regulatory landscape appears particularly challenging, with more than two-thirds of respondents indicating they will spend more time on regulatory compliance next year than this year. Recent compliance issues may be driving this increased focus – more than half of the companies surveyed reported having to pay fines or issue refunds due to errors in the last year. European and Australian insurers appear ahead of the curve, with 68% already increasing their focus on regulatory compliance compared to 62% of North American firms.

Operational speed remains a concern for many carriers. The survey found that nearly 60% of respondents take more than five months to implement a rule change, with more than 20% requiring longer than seven months.

This extended implementation timeline could impact insurers' ability to respond to market changes and maintain competitive positioning. The complexity of automated underwriting rules environments compounds this challenge, with 71% of respondents describing their current systems as complex or extremely complex, managing hundreds or even thousands of rules.

The research also highlighted collaboration challenges within insurance organizations. Less than a quarter of survey respondents reported regular team collaboration, with nearly seven out of 10 reporting only ad hoc collaboration between departments.

This siloed approach is often attributed to legacy technology systems that impede data sharing and cross-functional teamwork. Nearly half of executives believe their existing technology stack — including legacy systems, IT platforms, and third-party software — creates significant barriers to effective collaboration and innovation.

Macroeconomic conditions — such as inflation, climate change, cybersecurity risk, and uncertain economic conditions — will continue to challenge insurers. To meet these challenges, insurers will continue to grow their investments in third-party data over the next three years, in some cases increasing current levels by more than 20%.

Their top focus areas include the Internet of Things (IoT), predictions from machine learning models, telematics, and blockchain data.
The findings suggest that while the insurance industry recognizes the transformative potential of AI and advanced analytics, successful implementation will require significant modernization of core systems and processes.

Carriers who overcome these technological and operational challenges stand to gain a significant competitive advantage in an increasingly dynamic market.

Aaron Wright is the director of strategy at Earnix. Utilizing his insurance expertise, he sets company strategy and works with global insurance companies to modernize their insurance technology stack.

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