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For a notoriously conservative industry, the pace of innovation has accelerated markedly in recent years. Insurers have prioritized new ways to engage with customers, respond to changing preferences, and extract more value from data. They have also accessed the efficiencies proffered by digitization and cloud computing by upgrading IT systems and infrastructure.

Digital trading platforms have expanded beyond insurtech startups to provide instant coverage options, doing away with the need for a trail of emails. They can also allow for swift changes to coverage limits, and faster claims payments.

Blockchain is one of the most innovative trends in insurance today. The decentralized ledger technology is secure and tamper proof, comprising data structures holding batches of individual transactions, with each block bearing a timestamp and a link to a previous block. Although yet to be widely adopted, blockchain’s potential use cases include claims management, fraud prevention, proof of insurance, and the provision of insurance to hard-to-reach communities.

AI has exceeded its original promise of generating operational efficiencies and is assisting with multiple functions. Coupled with advanced analytics, it is transforming the way innovative insurance companies interact with customers and is making sense of huge volumes of data. Insurers are at an early stage in harnessing the vast power of gen AI, but it looks set to be a game changer, while carrying its own, significant risks. Gallagher Re found that in 2024 AI-focused insurtechs accounted for almost 35% of the 344 funding deals recorded.

Innovation in the insurance industry is happening across the distribution chain and in every business function. The obstacles are numerous, and success rates vary significantly by carrier and line of business. However, the industry appears to be getting better at it. A recent Accenture/Qorus survey found 80% of carriers considered innovation initiatives had either met or exceeded financial expectations, rising to 98% for non-financial expectations.

Insurance product innovation is increasing the industry’s relevance. Carriers are harnessing data to personalize customer interactions, while telematics and Internet-enabled devices are facilitating the creation of covers that more accurately reflect the risk and provide near real-time risk mitigation advice. Sustainability and ESG considerations are also encouraging innovation, while technological solutions are helping carriers respond to regulatory changes.

As Deloitte notes in its Global Insurance Outlook, AI and advanced analytics are helping carriers identify customers, create bespoke offers, improve service, and pick up early signals of client attrition. Telematics and Internet-of-Things devices, as we discuss below, are generating vast amounts of data that can assist in the assessment, pricing and mitigation of risk at individual customer level, while gen AI offers the possibility of creating personalized marketing content at speed and allowing policyholders to engage more easily with their insurers. Effective governance of such personalized insights, particularly compliance with privacy regulation, is essential. It’s also vital that the underlying data used to train AI models is accurate.

Usage-based insurance (UBI) models are among the well-established insurtech industry trends in the US auto segment, which AM Best recently highlighted as the most innovative part of the P&C sector. In auto insurance, UBI uses telematics data from cellular, GPS, and other technology to measure behaviors including miles driven, time of day and driving habits. UBI may include “on demand” covers allowing policyholders to activate insurance when it’s needed. UBI models can also be applied to the homeowners’ segment, though evidence suggests customers may be less willing to share data gathered from their homes than from their vehicles.

Data from Internet of Things (IoT) devices are beginning to transform insurers’ role from reactive claims payers to proactive risk-management partners in commercial insurance. Like smart devices in personal lines, they offer early warnings about risk. However, the gains are bigger, given the asset values at stake and the huge amount of data that IoT devices amass daily, including locational, environmental, biometric and physiological insights. The technology can help preempt incidents such as machinery breakdown, fire, flood, theft and personal injury. It does, of course, also increase exposure to cyberattacks capable of damaging industrial infrastructure. However, partnerships between insurers and cybersecurity specialists are helping the fightback. IoT devices can also assist underwriters with risk assessment and enable the creation of parametric insurance products. Integrating IoT data remains challenging but with the number of connected devices globally expected to rise to 41 billion by the end of 2025, according to Boston Consulting Group, the IoT looks set to become an increasingly important tool for insurance innovation.

Stakeholder expectations around sustainability have prompted substantial product innovation in recent years, ranging from expanded cover to protect directors and officers against climate-change litigation, to parametric insurance for no-quibble payouts after severe weather-related events. Insurers are also promoting sustainability, by, for example, allowing the reuse of spare parts in the auto sector, and incentivizing green construction practices. Sustainability-driven activities can create new risks, such as those associated with renewable energy, green industrial technologies and the decommissioning of fossil fuel installations. It’s also important to note that the importance ascribed to sustainability and ESG can change. US litigation has stymied insurers’ net zero goals, while President Trump’s withdrawal from the 2015 Paris Climate Accord, and the SEC’s rethink on mandatory climate-related disclosures have altered the direction of travel at Federal level.

Innovation in the insurance industry, such as using customer data to train large language models, carries regulatory risk. However, insurtech innovations are also helping carriers meet existing obligations and comply with evolving rules governing new technologies. Insurers have for some years used technology to automate routine regulatory duties and have started deploying predictive analytics to further improve regulatory processes. Gen AI looks set to move the dial in regulatory compliance, with its ability to spot changes still on the distant horizon one of its greatest promises. Emerging frameworks for AI regulation, such as the EU AI Act, should ultimately facilitate wider adoption, while imposing restrictions on certain uses. A divergence between the bloc’s approach to AI and the US’ more flexible stance, alongside the nuances of regulation across US states, highlight the need for innovative solutions to facilitate the mammoth task of global insurance regulatory compliance.

Fostering innovation while carrying out your day-to-day business activities and keeping staff on board can be challenging. Advisers in the field of technological transformation highlight the importance of establishing a roadmap of where you wish digital innovation in the insurance industry to take you. Read on for some approaches that work.

Getting colleagues’ buy-in with a coherent and measurable strategy that emphasizes the human benefits of technological transformation is essential. It’s also vital to maintain an over-arching focus on what matters to your business rather than getting distracted by new technology per se. In addition, establishing teams dedicated to innovation is preferable to expecting colleagues to do their day jobs while working on process improvements. As well as investing to improve colleagues’ digital literacy, insurers may need to spend significant sums to recruit data scientists and AI specialists. Organizations able to adopt an innovation mindset have overcome arguably the main obstacle to successful innovation in the insurance industry.

Knowing how and where to start your innovation journey is challenging and forging partnerships with insurtech startups can help. In its recent insurtech report, Gallagher Re reported continued strong interest in insurtech startups from (re)insurers’ corporate venture capital arms, with companies such as American Family, MassMutual, Munich Re, MS&AD and Tokio Marine among the investors. Aside from investments and outright acquisitions, there are several other ways insurers can work with startups. However, whatever the relationship, goals should be aligned, and the partnership managed by dedicated individuals. Risks from a cultural and operational perspective include divergent expectations, differing paces of working, staff departures and project “drift”.  

The most innovative insurers are streamlining the insurance lifecycle through straight-through processing (STP), which automates data exchange by digitizing workflows. STP eliminates manual tasks, data rekeying, and cuts out human error. The result is faster underwriting and speedier and more transparent claims processing, the latter of which is a major win from a customer perspective. Another impactful, and far more widely adopted, way to streamline operations is migrating IT infrastructure to cloud-based platforms for centralized data storage and application services. These improve security, efficiency and connectivity, while offering customers greater agency and transparency by incorporating features such as self-service portals with real-time updates. With customer data and privacy at stake, alongside the risk of outages, it’s critical to choose your cloud provider carefully and maintain stringent oversight of the arrangement.

With “permacrisis” now established in the lexicon as climate risk, geopolitical shifts and cyber vulnerabilities intersect, Innovative insurance companies are demonstrating their relevance by offering new products, risk management services, novel ways of engaging with customers and new distribution methods. With product development, McKinsey advocates clearly defined pathways, depending on whether the product Is totally new, being revamped significantly or merely tweaked, with risk-return profiles used to decide where each initiative belongs. Examples of recent insurance product innovation include ever-more sophisticated casualty ILS; parametric insurance extending beyond weather-related property risk to include footfall-related products to smooth revenue fluctuation; and risk management and crisis response services accompanying active assailant covers. In the future AI is seen likely to become a liability class of its own.

Since the arrival of ChatGPT in late 2022 gen AI has created huge excitement and carriers now have a large choice of commercial Large Language Models, and many thousands of open-source models, at their disposal. Gen AI can process vast amounts of unstructured data without extensive model training. It can automate tasks, create original content, and even apply contextual understanding to extract insights where little or no data is available. As we have seen, one use case is the creation of personalized services, products and marketing materials. Claims processing, underwriting, risk management, fraud detection and regulatory compliance are others. However, many insurers are trapped in what McKinsey calls “pilot purgatory”. Gen AI experimentation and implementation needs to be strategic, with organizations advised to consider all the technological levers that could be used to achieve their goals, alongside gen AI. It’s critical to manage gen AI’s many risks, by regularly reviewing the quality of the underlying data and by checking for biases. Advanced cybersecurity solutions and effective governance of gen AI across your organization are also key.

Here are just three examples of entities doing things a little differently.

Lemonade Foundation: Deploying blockchain to close the protection gap

The non-profit arm of Lemonade is leading an initiative to use smart contracts programmed on a blockchain to protect vulnerable communities from climate change. In Kenya the Lemonade Crypto Climate Coalition began by offering parametric crop insurance based on rain data to farmers. In 2023, 7,000 farmers received payouts. The smart contracts enabled fast cash transfers, without the need for claims filings or human adjusters.

Loadsure: Using AI to Verify Claims

Cargo insurance MGA Loadsure partnered with Google Cloud to develop an AI-powered claims verification system to expedite claims. Using Google Cloud’s Document AI, Loadsure has automated the extraction of essential data from claims documents, including bills of lading, invoices and other shipping documents. The alliance has reduced claims processing times from 30 to 60 minutes to almost real-time. The partners are working on ways to apply gen AI to additional processes.

AnchorWatch: Reimagining Bitcoin insurance

Despite widespread enthusiasm for Bitcoin, investors in the preeminent crypto currency have had hitherto to rely on limited, omnibus insurance policies at their custody provider, meaning they probably wouldn’t be fully indemnified if their Bitcoin was stolen. Startup AnchorWatch gives policyholders insurance for the full value of their Bitcoin by holding their currency in segregated vaults protected by a unique set of keys for each customer. The company attained Lloyd’s coverholder status last year.

Obstacles to successful insurance innovation are numerous and may emanate from within your organization, external stakeholders or the wider business environment. Below we discuss some of the key reasons why insurance innovation may fail to gain traction.

Old main-frame systems, which are bulky, complex, and often incompatible with modern solutions, are a significant obstacle to innovation. The substantial budget needed to keep legacy infrastructure functioning also leaves little left for investment in innovative technologies. A recent survey conducted for fintech Earnix of global industry executives found that modernizing legacy systems was their biggest challenge, with 49% admitting they were behind schedule. Replacing old systems and outdated infrastructure to support innovation, including advanced analytics and AI, may look disruptive and expensive. However, the financial and opportunity cost of continuing business as usual will only grow over time.

Silos between legal entities, geographies, lines of business, functions, and online and offline distribution channels have hampered innovation programs. They probably also mean insurers aren’t fully exploiting the data available to them, providing a consistent customer experience, or addressing intersecting risks created by factors such as globalized supply chains. Forward-thinking insurers are reconfiguring their organizational architectures to allow for greater collaboration on innovation and deploying integrated solutions such as AI-driven platforms to unify functions and business areas.

A recent Accenture report, drawing on insights from participants in Qorus’ insurance innovation awards, found a lack of innovation culture represented the highest hurdle to change. Many insurance professionals have been working in a similar way for decades. Underwriters, for example, may be resistant to applying their analytical and problem-solving skills to machine-generated predictive data. The situation is arguably not helped by the fact that an estimated half of the US insurance workforce is close to retirement, nor by the scattergun approach organizations often take to insurtech industry trends. Other factors to overcome include employee concern about being innovated out of a job.

Regulation can enable innovation by establishing a legal framework for new activities. However, it can also put the brakes on innovative insurance companies. A particular difficulty in ensuring compliance as you innovate is the divergence of state, Federal and international rules, in areas including privacy legislation, AI and climate-risk management.

In AI, as we have seen, regulation is evolving and diverging by jurisdiction. However, the risk of legal challenges after training models with personal, sensitive data is widespread. For any innovation project, it’s important to involve compliance experts and risk managers from the outset.

As we have seen, impactful insurance innovation incorporates new technologies to create efficiencies, remove friction and improve engagement with customers. Innovative insurers are also demonstrating their relevance with new or improved products and services. They are bringing their employees with them by clearly articulating their strategic vision. The deployment of AI and advanced analytics are supporting innovation and the management of associated risks, particularly among companies that have addressed organizational silos. The industry has some way to go before it’s leveraging the vast amount of information at its disposal and urgently needs to augment existing talent with data scientists and AI specialists but it’s making progress.

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