A year ago, we predicted a more stable, if not stellar, performance for insurers in 2024 after a couple of years of higher-than-expected claims costs. In 2025, we predict that insurers will continue to pass on higher costs of rising claims expenses to customers. This improving profitability will translate into increased tech spending as insurers prioritize innovation, data, AI, and automation, but most insurers won’t see immediate, material, and direct benefits from AI. AI’s promise of transforming underwriting, claims, and customer experience remains untapped, and only a tiny fraction of insurers will harness its full potential by 2025. Tech-driven product innovation such as embedded insurance and usage-based insurance may yield faster results, but long-term AI gains remain on the horizon.

  • Tech spending will be on the rise. Forrester predicts an 8% increase in tech spending across the insurance industry in 2025. Through tech projects, including advanced analytics and AI, insurers will enhance customer experiences, improve claims management, and optimize processes. As insurers prioritize agility and quicker time to value, they will cut back on new multiyear and complex transformation programs. In contrast, more iterative peripheral development will grow, such as building APIs and microservices and hollowing out complex business rules by constructing an abstraction layer around legacy backends. Insurance tech teams must use their budget in modular architecture to ensure seamless integration with internal and external systems, implement agile methodologies to speed up IT development and deployment, and improve employee training programs by using new technologies and tools such as data, AI, and analytics platforms.
  • Few insurers will see direct AI gains. Despite the excitement around AI, fewer than 5% of insurers are expected to see direct, tangible gains next year from the technology, such as having 10% of revenue attributable to AI. The barriers are significant: legacy systems, lack of AI talent, and difficulty integrating AI into existing processes. Many insurers will continue to invest in AI for internal automation, but the true potential of AI, such as improving underwriting or claims accuracy, will remain elusive for most. Insurance tech teams should focus on provisioning high-quality data (including unstructured data used for generative AI applications), partnering with vendors that can provide AI skills or applications, and adopting AI for specific use cases. These steps will still leave most insurers looking for direct gains from AI, however.
  • Embedded insurance will provide a bright spot. While AI monetization lags, embedded insurance is set to grow by 30%, especially in personal lines. In Forrester’s Priorities Survey, 2024, 32% of global business and technology professionals at insurance firms said they plan to invest more in embedded finance capabilities in 2025. This model, where insurance is seamlessly integrated into other services at the point of need, offers insurers a way to reach new customers and enhance distribution. While AI has the potential to enhance embedded insurance through the personalization of offers and the automation of insurance processes, the effectiveness of this strategy hinges on the strategic collaboration between carriers and non-insurance enterprises involved in the embedded insurance experience.

Forrester Can Help You Navigate This Exciting Future

Our newly published report, Predictions 2025: Insurance, offers our predictions for the insurance industry in 2025.

Clients can also connect with me through an inquiry or guidance session to discuss topics related to the future of insurance.

If you aren’t yet a client, you can download our complimentary Predictions guides, which cover more of our top predictions for 2025. Get additional complimentary resources, including webinars, on the Predictions 2025 hub.