Legacy Systems Still Dominate Claims

The reliance on legacy systems is a significant financial drain, with some insurers spending up to 75% of their IT budgets on maintaining these outdated platforms. This leaves little room for investment in innovation and modern technologies that could improve efficiency and customer service. The high costs are not just for hardware and software, but also for the specialized, and often scarce, IT staff required to operate and maintain them. These decades-old systems create significant operational bottlenecks and inefficiencies. Many still rely on batch processing overnight, meaning business decisions are always based on yesterday's information. This reliance on outdated architecture leads to slow, inefficient processes and the need for manual workarounds, which increases the likelihood of errors and further slows down critical functions like claims processing and underwriting. The lack of modern API capabilities in legacy systems is a primary obstacle to innovation. This makes integration with new technologies like AI, telematics, and digital claims management difficult and expensive. The result is often isolated data silos, where customer information is trapped in different systems, preventing a unified view and hindering cross-departmental collaboration. Customer expectations for seamless, digital-first experiences are a major catalyst for change. Legacy systems often result in slow claim approvals, delayed responses, and cumbersome policy management, leading to customer frustration. Insurtech startups, unburdened by this old technology, can often provide decisions in minutes, highlighting the competitive disadvantage faced by established insurers. To bridge the gap, some insurers are using "operational data storage" layers as a form of abstraction between the legacy system and modern IT infrastructure. This allows for the use of modern, fast APIs that can connect to external partners and new digital tools without immediately replacing the entire core system. The push to modernize is driven by several key factors, including the obsolescence of the legacy systems themselves, the need to comply with evolving regulations, and the desire to improve the customer experience. Insurers recognize that modernization can lead to significant productivity increases, with some estimates suggesting a 40% boost in operational productivity. The insurance industry's spending on technology is projected to reach $173 billion in 2026, a 7.8% increase from the previous year, with a significant focus on AI-enabled platforms, analytics, and core system modernization. This investment is increasingly aimed at embedding AI directly into core business processes to improve underwriting accuracy and accelerate claims processing.