Imagine you’re a CEO at a U.S. insurance company. You wake up to headlines about AI-powered competitors launching new products in weeks, while your teams are still wrestling with green-screen terminals and code written before the iPhone existed. That’s not just a frustrating scenario—it’s the daily reality for many insurance leaders, and it’s why so many feel like they’re running a race against time.
Let’s start with the elephant in the room: legacy technology. According to recent research, a staggering 74% of insurance companies in the U.S. are still running on outdated, legacy systems for critical functions like pricing, underwriting, and claims. These systems—often built decades ago—were designed for a slower, paper-driven era. They’re reliable, but they’re also inflexible, siloed, and expensive to maintain.
Take, for example, a typical legacy policy administration system. Launching a new insurance product typically takes 6–9 months, with costs running into the hundreds of thousands of dollars. That’s because every change, whether it’s updating premium calculations or adding a new coverage option, requires complex manual coding and extensive testing. In today’s market, where customer needs shift rapidly and competitors can pivot in weeks, that kind of delay is a killer.
74% of insurance companies continue to depend on outdated technology for their core operations. - Clearwater Analytics (2024)
This challenge is underscored by a June 2024 Deloitte survey of 200 U.S. insurance executives. The survey revealed two top business drivers:
86% of respondents are focused on launching insurance products rapidly and continuously refining their offerings
Second, two-thirds cited technological relevance as a key driver shaping their priorities.
For insurers saddled with legacy systems, these ambitions are difficult to achieve, making modernization not just a competitive advantage but a necessity.
Worse still, 70% to 80% of insurers’ IT budgets are swallowed up just keeping these old systems running. That leaves little left over for innovation, digital transformation, or experimenting with new customer experiences.
The insurance customer of today lives in a world where AI quietly powers almost every digital interaction—from personalized shopping recommendations to instant banking transactions and even the playlists that greet them on their morning run. This digital fluency has transformed what people expect from their insurers. It’s no longer enough to offer a policy and a phone number. Customers want instant everything: quotes, approvals, and claims decisions delivered in minutes, not days. They expect insurance products that are tailored to their lifestyles, whether that means usage-based auto coverage or real-time alerts about property risks.
AI is at the heart of these expectations. Consumers are used to chatbots that answer questions at midnight, apps that remember their preferences, and services that anticipate their needs before they even ask. They want the same from their insurance provider—whether they’re filing a claim, updating a policy, or just seeking advice. A seamless, omnichannel experience is now the baseline, not a bonus.
Regulators, too, are raising the bar. New data privacy laws and reporting requirements demand systems that can adapt quickly and securely. AI can help here as well, automating compliance and flagging potential risks before they become issues.
But here’s the catch: legacy systems in insurance simply can’t deliver on these fronts. For example, one insurer discovered that their mainframe-based claims platform couldn’t integrate with the AI tools needed to automate claims processing or provide real-time status updates. Another company, eager to launch a digital-first insurance product, found itself stuck in months of delays because its old systems couldn’t connect with third-party data sources or cloud-based apps.
What’s more, every day, you’re missing out on revenue you didn’t even know was there—just because you don’t have the data and insights to put the right products in front of the right customers
Legacy technology in insurance is like relying on a landline in a world where everyone else is using smartphones and video calls. It might still connect you, but it’s slow, limited, and leaves you out of the conversation when it matters most. The performance gap isn’t just technical—it’s a real-world business risk that’s playing out in boardrooms and customer inboxes every day.
Let’s bring this to life with a couple of scenarios:
A major storm hits the Midwest, and thousands of policyholders file claims online. Modern insurers use AI to triage and process simple claims quickly—customers get paid within days, if not hours. But if you’re stuck on legacy tech, your team is buried in paperwork, and customers wait days or weeks for answers. The result? Frustrated customers and a spike in churn.
A competitor launches a pay-per-mile auto insurance product using IoT and real-time analytics. Your marketing team wants to respond, but your legacy systems can’t handle real-time data feeds or flexible pricing models. By the time you’re ready, the market has moved on.
You want to modernize, but the people who understand your legacy systems are retiring—half of insurance company employees will retire in the next 15 years. Meanwhile, young tech talent is drawn to industries with cutting-edge tools, not COBOL and mainframes.
In 2025, the insurance industry’s technology gap will be more costly and visible than ever. Global IT spending in the sector is projected to reach $271 billion this year, reflecting a surge in investment as insurers race to modernize insurance operations and meet rising customer expectations. Forrester and other analysts predict an 8% increase in tech spending industry-wide, with 78% of insurers planning to boost their technology budgets, one-third of them by 10% or more.
Artificial intelligence and machine learning are now the top priorities for digital transformation in insurance, cited by 36% of insurers globally, followed by big data analytics (28%) and cloud infrastructure (26%). AI is being rapidly adopted for claims processing, underwriting, and risk assessment—automating routine tasks, improving efficiency, and enabling faster, more personalized customer service. Generative AI is already in full production at a third of insurance firms, with others actively scaling or piloting new solutions.
Customer demands are a driving force: 35% of insurers say improving customer experience is their top priority, and instant digital payouts after disasters are now seen as a baseline expectation. Embedded insurance, which integrates coverage seamlessly into other products and services, is projected to grow 30% this year, opening up new channels and customer segments.
Despite this momentum, the majority of insurers are still in the early stages of AI adoption, with fewer than 5% seeing direct, material business gains from AI today. The main barriers? Legacy systems, integration challenges, and a shortage of AI talent. Many insurers are now focusing on modular architectures, APIs, and low-code platforms to break down these barriers and accelerate digital transformation in insurance operations.
For U.S. insurance CEOs and CTOs, the message is clear: yesterday’s technology simply can’t keep up with today’s demands. The race isn’t just about adopting the latest tools—it’s about survival. Those who modernize will lead the pack; those who don’t risk being left behind, no matter how fast they try to run.
As one industry CTO put it, “We need to break down our legacy systems to leverage data and provide the digital journeys our customers expect. It’s not just about technology—it’s about staying relevant in a world that won’t wait for us to catch up.”