Bermuda: Insurance industry is going through a ‘profound’ tech transformation

Card answered questions from Bermuda:Re+ILS on cyber insurance, the impact of artificial intelligence and we discussed how the insurance industry is now going through a “profound” technological transformation.

What do you think the most important technology trends are for the insurance sector in 2025?

Card: There are a few important and fast developing trends that stand out. Certainly, the risk of cyberattack for industry participants escalated in 2024 – perhaps as steeply as the market for insuring cyber risk grew. Access to and the analytical use of insured data has now become one of the most important market differentiators, for both insurance and reinsurance risk assessment, pricing and product development. As well, although the use of intelligent software for claims processing and administration, whether as an in-house tool or through a third-party service provider, has been developing on the slow burner for many years, the sophistication of those capabilities is now fast increasing into the realm of AI business solutions and decision making. I think that the insurance sector is now going through the same profound technology transformation that large banking went through 20 years ago.

Tell us more about the cyber risks that the insurance sector faces.

Card: The media is full of reports of escalating cyberattacks across the insurance sector. Since the insurance sector includes a web of third-party service providers, it isn’t simply an internal security issue for insurers and reinsurers, but it’s a serious issue that has to be addressed for all third-party service providers that the sector is integrated into and dependent on. One of the largest third-party administrators that provides services to several large insurance enterprises, is reported to have suffered a cyberattack in 2024 that exposed the sensitive personal information of more than 800,000 people. Also in 2024, it was reported that a cyberattack on a large insurance claims aggregator and processor occurred in the US that cut off millions of claims from processing affecting thousands of hospitals, many hundreds of pharmacies and other insurance administrators. Another example is the reported 2024 cyberattack of a large insurance provider, where information of over 30,000 people was reportedly stolen.

I suppose that the same cyber risks of the insurance sector are also fuelling the growth of the cyber risk insurance market ?

Card: Absolutely. Although the demand for those insurance products is escalating quickly, I think that the existing products still have some development and maturity to go. For example, I think that there is still some disconnect between the proven cyber risk reduction measures that, as a matter of corporate governance, insurers could encourage insured companies to adopt (if not imposed on them), and the formulation of cyber risk policies. As well, I was interested to see Ian Smith, in his 2024 The Financial Times article, quote Zurich’s and Marsh McLennan’s position that “cyber threats are outpacing the ability of traditional insurance and risk management approaches to fully mitigate” those risks. When one considers that the global cyber risk insurance market was worth about $13 billion in 2023 and is now forecast to grow to at least $22.5 billion in 2025, cyber insurers now likely hold a great deal of critical information about what companies can, and should, be doing to drastically reduce their cyber risks and improve both their IT security measures and their cyberattack resiliency. So the need to directly connect proven risk mitigation strategies with cyber policy issuance and pricing will only become more acute in 2025. It would not even surprise me if a company’s assessment of what of its data really does, and what of its data really does not, need to be accessible online will become one of those risk calibrating factors.

Let me ask you about data trends in the insurance industry? I wonder if you could elaborate on those developments

Card: You know, it makes me think of (US political strategist) James Carville’s famous phrase and now book title, “It’s the economy, stupid” – because for success and competitive advantage across the insurance sector it truly is all about the data. To me, some of the most interesting developments in the industry have been in the field of data analytics and the impact those innovations are having on risk assessment, marketing, both product development and refinement, as well as improved pricing. Data mining, finding previously hidden patterns in insured behaviour, better understanding the minutia of property risks, climate pattern analysis, and even the detailed analytics of claim histories are transforming business decisions, product responses to market needs, and all aspects of actuarial science and underwriting practices. All truly transformative. But there are some interesting collateral trends affecting those developments. Just as the demand for data is exploding, so too are the laws and regulations around the access to, and the use of, personal information – much of which can’t be changed by contractual agreement between the insurer and the insured. So for any insurance that concerns human behaviour, health, or life – there are some fast developing legal impediments that have to be taken into account, especially when that information is provided by the insurer or reinsurer to any third party for any reason – including outsourcing service providers, analytics service providers or insurance sector intermediaries.

Switching now to your thoughts on AI and intelligent software, how do you think those developments are affecting, or will affect, the insurance sector?

Card: My first comment is one of context. There has not been, nor do I think will there be, a “Big Bang” of AI transformation. In my 35 years of technology governance, development and procurement in the North American insurance sector, I can tell you unequivocally that the increasing use of intelligent systems and software solutions has been a measured process with tremendous continuity, albeit with now an increasing pace of development and implementation. The use of software that can think for itself, improve and develop itself, and participate directly in the creative process of business improvement is still a long way off, but the current development rate of sophisticated intelligent systems and solutions to aid business decision making, to manage Big Data, and to undertake highly complex data analytics is truly impressive.

Are there any AI deployment risks that stand out to you at this point?

Card: I think that any technological transformation, including AI deployment, has to be included among the most difficult corporate governance challenges facing the insurance sector. Boards have to be on top of those issues. The more innovative the technology is, the more risk management attention the technology procurement contract requires. Also, there are many copyright infringement cases emerging that claim protected works have been wrongfully copied and used by the AI to create infringing works. So we are keeping an eye on those developments. You know, about 30 years ago, many large banks around the world began to think of themselves as more of a data management enterprise first, and financial service provider second. However, although it is widely accepted that banks have generally led the digital transformation curve in the broader financial services sector, McKinsey reported in their 2022 Global Banking Annual Review, titled “Banking on a Sustainable Path”, that only 7% of banks were completely utilizing crucial analytics and that they could do a lot more to leverage their data. That is not an irrelevant marker for insurance companies to consider, especially since they are now drastically increasing their use of intelligent systems in 2025 to develop new products, improve both their operations and profitability, and to competitively gain market share.

First Published In Bermuda:Re+ILS, January 2025