Making deft use of data—from information collected by flood sensors at a manufacturing plant to a driver’s photographs of a crumpled car panel—has become a prime source of competitive advantage for insurance carriers. Zettabytes of data, much of it unstructured and behavioral, now flows from connected cars, houses, factories, and human bodies.

The challenge for insurers is not handling more data; rather, it’s figuring out how to tap and analyze new forms of data and having the right infrastructure and approach to extract useful insights. For example, customers can now submit auto accident photos to a claims unit for the first notice of loss. Those photos will inform better decisions only if the insurer has a robust artificial intelligence (AI) model to process and evaluate the images and integrates the information into the core claims-handling and customer-facing workflows. Expanding amounts and formats of data exacerbate the challenge. For instance, while many firms now handle image data, they are only starting to incorporate crash-detection signals from telematics into core claims-handling processes.

Such advanced data analytics is difficult, if not impossible, to orchestrate in a legacy technology stack, as monolithic core systems cannot handle higher-frequency data that comes in different modes. Moreover, orchestration only works when data becomes an asset of the entire enterprise, not contained within the silo of a single department. Select claims data, for example, is valuable to the underwriting team, so it needs to be accessible, with the right controls in place.

Making this shift is a major undertaking: Insurers need to both modernize the technology and plan how to make productive use of data. And the executives responsible for modernizing technology cannot keep asking the board for more funding to build or buy new technology while at the same time trying to prove the return on investment for what is already launched.

High stakes for modernizing technology

Overhauling technology has become especially salient for carriers looking to address emerging opportunities. As insurable perils such as unprecedented climate events and cyber events intensify and diversify, carriers have an opening to provide customers with prevention and risk mitigation services, going well beyond recovery services and reimbursement for damages. Succeeding in these more complex service offerings requires carriers to adopt not only new software and platforms but also flexible infrastructure capable of ingesting new forms of data. It also requires a shift from being reactive to proactive in operations. Flexible technology systems will allow insurers to move in and out of markets or dial up or down their appetite for risk.

Yet, while many insurers have started to modernize their technology systems, most struggle to extract value, and they typically experience long, costly overhauls. They’re also weighing how to sequence technology investments while managing cost and profitability goals.

The stakes are high, as modernizing technology effectively can unlock significant value. Among property and casualty carriers, for instance, our analysis shows that attaining technology leadership—which we define along the dimensions of breadth of data and analytics, modern software adoption, cloud maturity, and IT spending as a percentage of operating expenses—can create up to 3 percentage points higher premium growth, 5 percentage points lower expense ratio, and 8 points higher customer Net Promoter Score^SM (a reliable metric of customer loyalty) than the rest of the pack (see Figures 1 and 2).

These technology leaders currently compose a small group. Our analysis regressing the technology dimensions with business performance metrics finds that only 5% to 10% of carriers consistently capture value from their data and technology investments. The great majority of insurers have not realized substantial value from their efforts to date.

Drawing up the playbook

Fortunately, there is a reliable playbook to improve technology throughout the enterprise and apply it to the most pressing business issues. Companies can succeed with the following principles:

• Crystal clarity on business priorities. Determine what issues the company is trying to solve and prioritize them by measurable value.
• Leading with data, not applications. Understand the current and future data requirements and data model before modernizing applications.
• Investment in the right tools and capabilities. These include data aligned with use cases, high-caliber recruitment and retention of talent, a continued shift to the cloud, and modular, highly configurable platforms.
• Orchestration of initiatives. Differential investment requires setting objectives and tracking results for each initiative. Companies will have to both modernize the technology and figure out how to make productive use of data at the same time.

The carrier’s starting position and ambition should guide specific technology investments and prioritization. All modernization involves some form of core system and data work, but key choices will differ based on the company’s intended business outcomes, whether that’s becoming best in customer experience, best in product and price, best in cost, or best in distribution.

Best in customer experience. A superior customer experience across channels requires personalized, real-time interactions enabled by strong data analytics. Allstate is a case in point. It began its journey to data modernization by installing a unified customer view accessible across the business. It updated core systems such as claims processing and digitalized most core business processes to extract value from customer data. As a result, Allstate is starting to realize the benefits from its technology choices. From 2020 to 2022, the company was able to improve its premium growth by 5 percentage points (having raised prices to align rates with expected losses) and lower its expense ratio by 4 percentage points, relative to competitors.

Best in product and price. Companies can excel in risk-adjusted pricing through modular product design and construction, speed to market, and greater innovation. Progressive took this path with a data-first approach, including its innovative Snapshot telematics offering that allowed the company to refine pricing. Progressive also optimized marketing spending and integrated third-party data into its agent platform. By adopting solutions for unstructured data and predictive analytics, Progressive reduced its claims risk and improved fraud detection. With these advances, the company improved its relative competitive position by 6 percentage points of premium growth and 10 percentage points of expense ratio.

Best in cost. Administrative and process costs can be minimized through advanced automation and lean operations, in areas such as touchless claims and fraud detection. Esure has focused on technology choices to minimize cost to serve, as price comparison websites are critical in its car and home insurance markets. The company pursued core modernization to simplify auto coverage products and enable usage-based insurance. It reduced the cost to serve with updates to its mobile app and its quote, purchase, and claims processes. Esure drove down IT operations costs and claims costs through more digital interactions, automated claims handling, and cloud-based modern technology. The company’s low cost position and investments in data and analytics are expected to fuel substantial market share gains in the future.

Best in distribution. This ambition involves doubling down on advisers with best-in-class tools, data-backed insights, and AI-powered assistance.

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For the foreseeable future, insurers that don’t continuously modernize, innovate, and simplify their technology systems risk becoming not just inefficient but irrelevant. Carriers that lead in technology look set to keep outperforming on business dimensions. Purposeful investment creates a virtuous circle of increased value, market share growth, and the ability to invest further in tech innovations as they materialize. Carriers that take a more scattered approach, by contrast, likely will find their business ambitions undercut by investments spread thinly across competing priorities, mediocre value capture, and lagging performance.