Tech innovation is changing the shape of the insurance industry

Change in the insurance business is moving ahead faster than ever. Insurers are embracing new technologies and processes, and as they do so, they’re changing the shape of the industry. Several new advances impact the field, demonstrating the importance of keeping up with innovation.

With 2025 on pace to surpass $100 billion in insured losses from natural catastrophes (for the seventh year in a row), the industry is feeling a lot of pressure. To add to the stresses, in 2024 the global number of cybercrime claims over $1.16 million went up by 14% and the severity of those claims increased by 17%, in a continuation of a years-long upward trend.

To face these challenges, insurers and reinsurers are increasingly turning to technological tools and new process methods to create a more resilient and cost-effective business model. For example, a 2024 InsurTech Insights survey reported that 78% of reinsurers used machine learning algorithms to enhance catastrophe models, a 16% increase from just two years before. These models bring in data from satellite imagery, smart devices and other sources, providing real-time information that can drive precise predictive models.

And, according to statistics from Conning, artificial intelligence is being adopted at an accelerated pace in the insurance industry with 77% of respondents in their 2024 survey saying that they are integrating AI in their practices -  a 16% increase from the same survey in 2023.

Tools for risk assessment and prevention

AI and ML are powerful tools for fine-tuning risk assessment. With advanced analytics, AI and ML can process vast amounts of historical and real-time data to predict the likelihood of catastrophic events. These tools can be used to develop hyperlocal models based on population density, building construction methods and age, and recent weather patterns, allowing for very precise modeling.

Advances in AI may even be used to prevent or reduce losses by providing real-time predictions of imminent catastrophes, giving individuals at risk time to reach safety. It can also inform building methods on a more granular level, identifying risks in specific, hyperlocal areas.

Technology improves customer service

Some companies, such as Hiscox London Market, are using AI to automate the underwriting process, allowing them to produce quotes in minutes. AI does background research, while human underwriters perform the final review before releasing the quote.

Technology is also accelerating claims processing and resolution. DryStone Capital adopted AI early, building an AI-powered third-party administrator for commercial auto that pairs smart automation with human oversight to deliver faster, more consistent outcomes at lower cost and with stronger loss performance.

Why innovation matters

• It can reduce costs. Technical innovation can improve the bottom line through cost savings. Automating applications and claims processing reduces operational expenses. More precise risk modeling based on AI and ML can reduce the likelihood of having to absorb larger than expected claims. It also saves customers money, as better modeling leads to more precise pricing.
• It can drive revenue. Innovation supports revenue by improving the customer experience. Streamlined applications, faster quotes and speedier claims turnarounds build customer satisfaction. Clientele increasingly expect this level of fast service and will reward it with loyalty and repeat business. And if it’s not available, they’re more likely to turn to a competitor with better service.
• It can improve the employee experience. AI and other forms of automation can change the role of customer-facing employees. Many people assume AI will take away those jobs, but business behavioral expert and Forbes contributor Diane Hamilton suggests that it may actually create more jobs. In her view, as routine customer service gets better with the help of AI, people will reach out more often, and human agents will be able to “shift to a more strategic role—using AI-driven insights to improve products, spot trends, and create stronger customer relationships.”

Other routes to innovation 

• Optimizing captive insurer opportunities. More and more large organizations are turning to the captive model to protect against major risks, including cyberattacks and ballooning health care costs. As companies become their own insurers, they can transfer some of their risk to third-party insurers, providing another revenue source for those firms. Insurers can also serve as advisors to help captive insurers understand and mitigate their risks.
• Mergers and acquisitions. In its 2022 report on strategies to accelerate innovation, InsurTech Insights noted that “M&A is the cheapest way of innovating.” New York-based Clearview Insurance did just that - they built a successful business model by acquiring agencies who were looking to expand. Acquired agents can quickly integrate, leveraging Clearview's resources to grow and scale their operations while maintaining autonomy.

 How to get started

Innovation is a process. Some might even say it’s a state of mind. To get started, do research, talk with colleagues and attend conferences. Learn about technology designed for the insurance market. Find out about firms for sale that have strong tech tools, and talk with business advisors for direction.

Acquisitions and technology investments will require funding. Make sure to check out lenders who understand the insurance business and learn how they can help with financing. A leaner, more competitive future could be on the horizon.

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Alicia Chandler is president of Oak Street Funding, a First Financial Bank company. Contact her at [email protected].