2025 and Beyond: Challenges Insurance Carriers Continue to Face

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By Kurt Diederich, President & CEO

Evolving customer expectations and technological advancements consistently drive the need for innovation. As we enter 2025, insurance carriers are still dealing with outdated technology and the pressure to modernize while keeping their business running smoothly.

Legacy systems continue to create roadblocks, making it difficult for carriers to scale, innovate, and integrate with the latest technology. At the same time, policyholders now expect a seamless and user-friendly digital experience, and insurers who fail to meet these expectations risk losing business to more tech-savvy competitors.

Let’s take a closer look at these persistent challenges and, more importantly, how carriers can finally overcome them.

Legacy System Modernization

Many insurance carriers still rely on outdated legacy core systems that were built decades ago. These outdated systems create operational inefficiencies, limit scalability, and make it difficult to integrate with modern technologies such as AI, machine learning, and real-time data analytics.

The drawbacks don’t stop there. Maintaining outdated systems is costly, prone to security vulnerabilities, and slows down innovation. In a recent report, Martina Conlon from Datos Insights indicated that the type of system modernization in 2025 would vary by the size of the carrier, with smaller insurance modernizing core systems and larger ones focusing more on underwriting and finance systems. Regardless of size, one thing is clear: modernization is a necessity.

To remain competitive, insurers must modernize their core systems by transitioning to cloud-based, modular, and API-driven architectures. Adopting a flexible, cloud-based core insurance processing system allows carriers to enhance agility, scalability, and security. Working with the right technology partner is key to making this transition seamless and minimizing disruption to day-to-day operations.

Customer Experience and Digital Engagement

Policyholders no longer compare their experiences to those of other insurers. Instead, they compare them to companies like Amazon, Apple, and other digital-first brands. Unfortunately, many insurers still rely on manual processes, disjointed communication channels, and outdated customer portals, which can lead to frustration and churn. These manual processes and dated technology can also lead to poor customer service, forcing policyholders to call agents for simple requests, slow claims processing, and fragmented interactions across mobile, web, and phone.

Investing in omnichannel digital engagement can significantly enhance customer experience by streamlining processes, personalizing interaction, and enhancing self-service capabilities. Look for a core processing system that includes built-in tools that enhance your customer experience for both agents and policyholders.

How the Finys Suite Can Help

Modernization isn’t just about keeping up – it’s about staying ahead. Carriers that embrace technology and address these challenges head-on will be the ones leading the industry in 2025 and beyond.

The Finys Suite is a cloud-based, modular core processing system that enables carriers to modernize at their own pace. Its flexible architecture, API integrations, and real-time processing help carriers transition from legacy constraints without disrupting daily operations. With intuitive self-service portals, automated workflows, and seamless claims and billing management, the Finys Suite empowers insurers to deliver the fast, digital-first experience that policyholders expect.

By investing in the right technology solutions, insurers can finally overcome these familiar challenges and set the stage for long-term success.

The Con in Control

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Note: This post was drafted before the fires that swept Southern California. In hindsight, it seems oddly prescient.

When we read the obligatory predictions for coming years in insurance trade articles and consultancy reports, we like to look for themes. Those themes are most often found between the lines of the text in the article and reports. This year is no different. Here’s what we mean.

According to an article in Risk & Insurance — “The State of the Insurance Market: What’s in Store for 2025” — there are some challenges ahead. We can’t remember a year in which there were no challenges. But let’s get to them:

Catastrophic property loss and auto lines bring considerable challenge to the market as historic loss levels continued to plague 2024 … Catastrophic events have also been linked to inflation and rising costs, including interest rates and supply chain issues, which further impact overall insurance costs.

To paraphrase, catastrophes are likely to occur and to be problematic.

Next, in its report, “Insurance 2025 and Beyond”, PWC wrote:

Continued rapid advancements in digital and analytics capabilities, from inside and outside the industry, have put many players under pressure. We’ve seen a sharp increase in digital efforts and adoption in areas like distribution, operations and claims. However, insurers still lack speed and agility due to inherent complexities such as legacy systems and traditionally siloed operations.

The report cited five specific factors on which to keep an eye:

  1. A widening trust gap
  2. Rapidly evolving customer needs
  3. An increasingly digital and AI-driven world
  4. Climate risk and a focus on sustainability
  5. Convergence, collaboration, and competition.

To paraphrase again, relationships, consumer desires, technology, weather, and players in the market bear watching.

Finally, we looked at a report from Willis Towers Watson — “Insurance Marketplace Realities 2025 – Casualty” — that said this:

Casualty liability lines claim frequency and severity drive up loss ratios and subsequent premium while workers compensation results continue to mitigate those of liability and are leveraged accordingly. The marketplace is responding to increasing inflation and reserves while trying to competitively round out portfolios.

To paraphrase one more time, good news offsets bad in most property/casualty books of business. That’s the way the world and life work.

Let’s Connect Dots

Is there a unifying theme to be found by reading between the lines of these sources? Yes. In fact, it’s the same theme every year. That theme is uncertainty.

There’s a reason the expression, “There are no guarantees,” is a cliché. Given the truth of that expression, the notion or suggestion of control is a con, a source of deception. The truth is we control precious little. Rather than control or clairvoyance, the key to long-term success is preparedness.

To be adequately prepared, core system vendors should be digitally flexible enough to incorporate technical change and to integrate systems and data sources that suit their business models and provide discernible value to their customers.

That kind of preparedness is exactly what we mean when we say the Finys Suite is future-proof.

A Tale of Two Words: Planning and Preparation

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“May you live in interesting times,” is a popular expression attributable to myriad sources and derivations. But it’s safe to say, regardless of the source, the insurance industry is living in some interesting times, indeed.

On January 7th of this year, Insurance Journal published a post — “Moody’s Global P/C Outlook Now Stable Despite Past-Peak Commercial Pricing” — that began with this:

Moody’s Ratings changed the sector outlook for the global property/casualty insurance industry to stable from negative last month.

Nobody, of course, could have seen the month that was coming. But January did come. And it brought, among other things, the latest catastrophic fires in California. Losses from those fires were quickly estimated to be more than $20 billion. In addition to overwhelming California’s state-backed property/casualty insurance market, which was already fragile, rates have already been estimated to jump 40 to 50 percent, more carriers will likely refuse to write coverage in fire-prone areas, even more carriers may leave the state than have left already.

According to CalMatters:

The FAIR Plan, the insurer for many of those affected by the current blazes, will likely have to pay claims for tens of billions of dollars in damages … [Stephen Collier, professor of city and regional planning at UC Berkeley whose research focuses on insurance, climate change and urban planning] said that massive potential liability could make insurers “think twice” about whether they want to keep writing policies in the state. “Having all this risk transferred to the FAIR Plan doesn’t get insurers off the hook if they’re still writing in the California market,” he said. That’s because insurers in the state are on the hook to pay into the plan when it can’t cover all its claims.

In what may be even worse news for insurers with coverages already written, Reuters reported:

U.S. insurance stocks slid on Friday as analysts estimated insured losses from the wildfires menacing Los Angeles could reach as high as $20 billion, potentially making it the costliest disaster in California’s history … Analysts are evaluating the financial impact of the disaster, with J.P.Morgan doubling its forecast of insured losses to over $20 billion. Wells Fargo also expects similar insured losses and said the total economic hit from the disaster could be well above $60 billion. To help provide critical stability amid the devastation caused by the fires, California Insurance Commissioner Ricardo Lara invoked moratorium powers to suspend all policy non-renewals and cancellations from insurance companies for one year.

Plan vs. Prepare

No one imagines or believes disasters like this can — or should — be planned for. But we can — and should — do what we can to be prepared. Is that a distinction without a difference? No. Here’s why:

  • Planning involves creating a detailed outline or scheme of how to achieve a goal, often based on assumptions about how the future will unfold. (See “Strategy, Hope is Not a.”) It presumes control.
  • Preparation involves mustering the resources, the skills, the training, and the mindsets needed to adapt to various scenarios, recognizing the future is unpredictable. It presumes uncertainty.

We can’t plan for everything. But we should do our best to be prepared for anything.

Making FAIR Plans More Fair

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The December edition of Best’s Review contained an article that caught our attention: ”FAIR Plan Policies Nearly Double in Five Years”. It caught our attention for two reasons. First, we write FAIR Plans. Second, there seems to be some churning in the FAIR Plan vendor market. It’s no wonder. It’s not an easy market to serve. But that’s not to say it can’t be served … and served well.

According to the article:

Insurers of homeowners and even commercial property risks have had a tough time, due to [a lack of] positive underwriting results in recent years. Some of those factors, obviously, have been the greater frequency and severity of extreme weather events and weather events of different types, be they primary perils or the perils referred to as secondary perils like severe convective storms and wildfires, etc. They’ve also been challenged by inflationary pressures that have pushed average claim costs upward.

Yes. Managing increasing demand is a challenge; i.e., adapting to the growing demand for coverage while ensuring the long-term sustainability and effectiveness of the programs. Specifically, FAIR Plans have to:

  • Balance the need to provide coverage to high-risk prospects’ with the need to maintain solvency and not disrupt the insurance market’s supply-demand equilibrium.
  • Manage the complexity and variability of FAIR Plans across different states, with each plan having its own structure and regulations.

In a post update on March 20th of this year, the NAIC echoed some of these challenges:

FAIR plans are typically more expensive and have limited protection than insurance obtained in the regular market … FAIR Plan insurance coverage varies by state … Coverage for personal belongings and additional structures on the property are usually only offered as optional policy add-ons. Generally, loss of use and personal liability coverages aren’t offered via FAIR plans … Some states have a single state-run plan, while others have multiple plans operated by different insurance companies … Additionally, some states have residual market mechanisms, such as assigned risk plans, which serve a similar purpose to FAIR plans … the mission of FAIR plans broadened as these plans are increasingly viewed as tools for promoting economic development in coastal areas and providing low priced insurance.

But that doesn’t mean those challenges can’t be met and managed.

No Quick Fix

There’s no magic bullet for challenges as big and numerous as the ones outlined above. And we don’t claim to have one. But we’ve become the vendor of choice for FAIR Plans for a number of reasons:

  1. We’ve been working with them for more than a decade.
  2. The Finys Suite has a standard configuration for most FAIR Plans.
  3. The Finys Suite is used to process more than 750 LOB combinations,
  4. The Finys Suite contains pre-built, LOB-specific templates for ISO, MSO, and AAIS lines.

Will that solve everything? No. Will it make it easier for FAIR Plans to write business? Yes.

It’ll also make it easier for FAIR Plans to find a vendor who’s in it for the long haul.

Reliability is underrated.

Get it Right the First Time: Part Two

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In our most recent post, we cited one we’d written six years ago. Given the Holiday Season, maybe we’re feeling nostalgic. We don’t know.

But we do know almost six years ago, we published another post called, “Get it Right the First Time“. In it, we cited a survey of 396 CIOs and technology leaders about replacing core systems. Forty-one percent of respondents cited implementation risks. Twenty-four percent cited time and disruptions. Another 24 percent cited vendor product deficiencies. After scratching our heads, we concluded this:

Our experience indicates that implementation risks, disruptions, and product deficiencies can be increasingly minimized with diligent, empirical scrutiny of the issues that arise; point-in-time conversions from the old system to its replacement; and ongoing customer feedback with the requisite, corresponding development efforts.

Since then, you know what’s changed? Not much.

Let’s Review

Just for the fun of it, we used AI to search on this question: “What do insurance executives fear most about replacing core systems?” To summarize the responses, insurance executives fear:

  1. Non-compliance with regulatory requirements. Their concerns stem from the fact that their legacy systems may not meet current regulatory standards. They extrapolate that to mean modernization efforts may require significant compliance efforts to ensure adherence to data privacy, security, and other regulatory requirements. Well, yeah.
  2. Change. That makes them human, of course. And insurance companies typically have strong cultures and histories, leading their employee to resist adopting new technologies. It seems to us that puts 1 and 2 at direct odds with each other.
  3. Interrupting their business operations. It’s possible that replacing core systems can disrupt business operations and cause losses in productivity, revenue, and customer satisfaction.
  4. Technical complexity. That makes them human, too. Especially if their legacy systems are outdated, fragmented Frankensystems — and difficult to integrate with new technologies — fears 1 through 3 can be justified.
  5. The investment of time and money. Especially if their implementation projects aren’t managed diligently and expertly to get them right the first time, they’re right to be afraid.
  6. Loss of competitive advantage if competitors adopt new technologies faster, leading to market share losses. Given #5, that fear is completely justified.
  7. Difficulty in phasing out legacy systems, ensuring smooth transitions, and #3.
  8. Inadequate planning and strategy that leads to the implementation of systems that may not meet business needs, leading to stalled or failed initiatives, wasted resources, and loss of job security.

Are all of those fears justified? Yes. Are all of them warranted? No.

We Got This

We concede this might be self-serving. But our take is numbers 1-8 above reinforce the need for insurers to choose their vendors carefully. If your vendor can’t reassure you it will mitigate and minimize your risks of numbers 1-8 above, we know some guys.

We’ll be happy to help you get your core system replacement right the first time.

Keep the Change: Part Two

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Six years ago, we wrote a post called, “Keep the Change”. At the end of that post, we wrote this:

Since we have to keep the change, we may as well manage it effectively.

In the time that’s elapsed, we’ve come to realize two things: (1) We were correct. (2) We didn’t know how correct we were.

Today, of course, we’re likely to hear change referred to as transformation. Digital transformation. Financial transformation. Operational transformation. “We’re going to transform the enterprise!”

Are we really?

Transformation seems too abrupt. It feels like zero to sixty or a snap of the fingers. That’s not at all the kind of change we think about or that our software enables. Rather, it’s more gradual and deliberate. It’s more incremental and better managed. And it involves knowledge, learning, and what used to be called process re-engineering. Maybe it still is, for all we know.

Approach is Everything

Instead of transformation or process re-engineering, we’re more likely to call it change management. By that, we’re referring to a service that comes with our software. More specifically, we mean — especially when transitioning from fragmented legacy systems to an integrated suite — some processes are likely to change as they become more automated and efficient.

By the same token, people are likely to change in different ways. Some people may resist or have difficulty reconciling themselves to new systems and new processes. On the other hand, other people, who may have been considered marginal performers with the old system, may become stars with a new system and altered processes. And if we accept that best practices are static and determined in hindsight (they are) we can also tout that best practices, modified by experience, can be better practices. That creates the opportunity for people to suggest what’s possible, to build collaborative relationships, and to continuously improve requirements-identifying processes.

In other words, we view change management as a crucial aspect of of delivering our software. It’s a systematic approach to supporting people through their transitions to new processes with new tools.

Yes. We have to keep the change. We also have to manage it to keep it accessible and assimilable to everyone who experiences it. We have to ensure every link in the chain is secure.

It’s all part of the service.

The Three Ps

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Most software companies define success in a number of common (and predictable) ways: They develop and deliver software specifically for their intended users. They possess a deep understanding of their customers’ needs and experiences. They ensure their software enhances business value and has quantifiable ROI. They establish roles and responsibilities with their customers during implementations. They define and achieve clear project objectives, including development cycles, milestones, and release plans. They count their numbers of users. They measure the satisfaction of their users, largely by staying within project scopes and budgets, completing project tasks on time, meeting milestones, and fulfilling specified requirements.

But we don’t consider ourselves to be common. And the only thing we want to be predictable around here is our reliability.

We’re Different

While predicability does start with p, it’s not one of the Three Ps we’re talking about. We’re talking about the Three Ps on which we built our company and by which we established our reputation.

Those Three Ps are, in this order:

  1. People. We’re not aware of any software organizations that have been built with code. Software is built with code. Organizations are built with people who love what they do, who are dedicated to the success of their teammates, and who are passionate about the satisfaction of their customers.
  2. Process. We don’t think of process as formula. We think of it as ever-evolving. We don’t think of best practices. We’re constantly in search of better practices. And we don’t dictate processes to our people. We encourage them to find them — to try, to experiment, to fail on occasion, to learn from their failures, and to improve their skills and their performance.
  3. Product. We’re very proud of our product. But it doesn’t constitute laurels on which to rest. Rather, the functional capabilities of our product are benchmarks: If we can do this today, with the ingenuity of our people and the input from our customers, we’ll do that tomorrow. That’s the way in which people and process always inform and improve our product.

It’s About Priorities

We didn’t count priorities as a fourth p. We could have because we learned a long time ago we become what we count. That’s why we count our most valuable assets. And our most valuable assets are our people. We wouldn’t have a process or a product without them.

What do you count?

The Use in User Groups

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Since we concluded our Innovation Advisory Board (IAB) meetings early last month, since the IAB comprises users of our software, and since (like our software) we intend to keep improving our IAB meetings, we were doing a little reading on the topic. We found a post from April of 2022, published by Forbes — “Why Customer User Groups Are Integral To The Success Of Today’s Technology Organizations” — that proved to be instructive and affirming. It said this, in part:

User groups exist to facilitate knowledge-sharing and communication among individuals who use the same technology, so providing a frictionless forum to share and receive information is critical … Many technology companies decide to form user groups when they have motivated and engaged customers who see the benefit of participating in a community around the company’s particular products or platforms. As groups grow, it’s the relationships — built among members and the vendor — that are the basis of user groups’ value.

We agree with all those points. And we’d add, in our experience, the relationships we build with our customers yield loyalty, which is a significant part of the IAB’s value to us.

There’s More

In addition to the points raised in the Forbes post, we find the IAB yields these things, as well:

  • Expertise and Guidance: Since we’re all working in and sharing knowledge of the insurance domain, the input we get from our customers provides the insights we need to ensure our products and services evolve most beneficially.
  • Stakeholder Engagement: Beyond our users, the IAB allows us to include other stakeholders, including vendors of other systems and data sources with which we integrate to provide the functionality and the information our customers need to do their jobs most efficiently.
  • Improved Governance: Advisory boards can serve — our IAB provides — checkpoints for ensuring our accountability, transparency, and responsible decision-making.
  • Effective Leadership: Our IAB also provides leadership by giving us feedback on practice standards and helping to keep us in compliance with ethical codes, as well as regulatory mandates.
  • Resource Accessibility: Since we can’t know everything, our Advisory Board helps us identify and make us of existing vendors, resources, expertise, and networks, keeping us from reinventing wheels, reducing costs, and increasing efficiency.
What’s Next?

We’ve already received feedback from the attendees of this year’s IAB meetings. We’re considering all of it and will include it in the development of next years IAB meetings. And we’ll continue to ensure the Finys Suite contains the features our customers want and need. Otherwise, they won’t use it.

That’s how we keep the use in our user group.

The Tell in Artificial Intelligence

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tell (noun)

  1. In poker, a tell is a change in a player’s behavior or demeanor that allegedly reveals information about his hand strength. This can include facial expressions, nervous habits, or mannerisms that are believed to be indicative of a player’s assessment of his hand. A tell can be used to gain an advantage by observing and understanding the behavior of other players, but it can also be faked or misinterpreted.
  2. A tell can also refer to any behavior or action that reveals a person’s true intentions, emotions, or thoughts, often unintentionally. This concept can be applied to various aspects of human interaction.

In February of this year, we published a post called, “The Art in Artificial Intelligence”, in response to an article we read in the December edition of Best’s Review. We stand by the balance of optimism and skepticism we struck in that post. And we found that balance validated in the October edition of Best’s Review. That edition ran an article called, “Artificial Intelligence’s Imperfections Become Clearer.” Is it a condemnation of AI? Not by a long shot. But in identifying some of AI’s tells, it does sound cautionary notes worth heeding.

Exhibit A

First, the article offers this slice of sensibility:

How can insurance underwriters, using AI, separate fact from fiction? Could AI be wrong? AI systems can be imperfect and may produce erroneous outcomes if they are trained on biased or inadequate datasets. Add to those false pathways, poor data integration, algorithmic bias and decision-making errors and, yes, AI can be wrong. Examples may include denial of a claim due to not having the correct nomenclature programmed into and recognized by AI. At times, AI will confidently, yet inadvertently, omit information, such as a street address; or list a medical condition that a claimant may not have had; or fail to post electronic fund transfers in a timely manner for premium payments, resulting in a notice of cancellation.

It’s fair to imagine the differences between fact and fiction are seldom considered when it comes to AI. But the fact is AI still requires programming and accurate data. So, it’s still subject to GIGO.

Exhibit B

Then the article ups the ante, extending its considerations to insurance companies in their entirety:

What about “business decisions” made by insurance carriers when a loss occurs? Can AI make decisions based on business relationships and long-term client loyalty … what data points go into that algorithm? AI … offers a huge amount of promise for the insurance industry. But mitigating uncertainty … has to be at the forefront of asserting the risk decision-making for accuracy by machine and human on paper and online.

Insurance companies may be built on products and services. But they’re sustained by minimizing losses, maximizing and maintaining business relationships, and ensuring the loyalty of policyholders. Those things are not worth risking to AI or anything else.

Our View

We tend to think of AI in terms of the classic technology adoption lifecycle, which mimics the bell curve. We don’t need to innovate with it. We don’t need to be early adopters of it. But we do need to keep our eye on it, to learn about it, and to employ it in ways that will best — and most reliably — serve our customers. Then, especially if it turns about be anything like the dot-com bubble, neither we nor our customers will pay any undue prices should the bubble burst.

Image by Craig Chelius, CC BY 3.0, via Wikimedia Commons.

We’re not in the business of building every bell and whistle we can think of. And we’re not inclined to weigh our product down with unnecessary functionality. We are, however, very much in the business of giving our customer what they need when — and because — they need it.

As the saying goes, reliability is in the AI of the beholder.

A Study in Contrasts

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We asked JoAnna Bennett and Mark O’Brien from O’Brien Communications Group to attend our annual Innovation Advisory Board Meeting. Following that experience, Mark wrote this post.

Back in my corporate days, I had the distinct sense in every meeting I attended that they were conducted for the sole purpose of talking about writing plans for things we were going to do. No such plans ever got written. None of those things ever got done. But people seemed pretty content with the routine. And no one was ever held accountable for the fact that nothing ever got done. As curious as I was about that, I was even more curious about how people seemed so content to be unproductive and about why there was no accountability.

In contrast, at the Finys Innovation Advisory Board (IAB) meeting last week, there was no talk about planning. There were only confirmations of things that had been done and updates about things that would be done. There was no discernible hierarchy. Rather, there were contributions from every level of the organization, recognition for those contributions, and 40 or more attendees from Finys’s various client companies, happy that all those things were being done on their behalf. I felt amazed and naïve.

I felt amazed at the genuine interaction and sincere customer satisfaction I was witnessing. I felt naïve because I’d never imagined how simple creating that kind of environment could be. And the secret to how it’s done is that there’s no secret to how it’s done.

Common Sense

Experiences like ours at the IAB indicate how inscrutably uncommon common sense has become.

At the IAB, I learned you don’t create a culture by talking about it. I learned culture and teamwork are like honesty and integrity. You don’t manifest those things by talking about them, either. You manifest them by being them, by demonstrating them, by making sure every interaction — employees with employees and employees with customers — is driven by them. I learned you find the right people for the culture you’re creating by asking the right questions in the interview process. Rather than asking questions like, “Where do you see yourself in five years?” you ask questions like, “How would you like to contribute to this organization and help us grow over the next five years?”

Once you’ve brought the right people on board, you give them the latitude to contribute and to collaborate. You let them make mistakes, correct them, and learn from them. And you give them support, recognition, and opportunities to advance. If you do that, you prove Richard Branson  was correct when he said, “Clients do not come first. Employees come first. If you take care of your employees, they will take care of the clients.”

The Proof in the Pudding

If you doubt the truth of Branson’s statement, all you have to do is sit in a room full of happy clients and the people who are happy to take care of them. From what I witnessed, I don’t believe there is one person at Finys for whom working there is just a job. You can’t fake commitment, dedication, and knowledge. And you can’t earn trust from and enthusiastic collaboration with your clients by faking anything.

There’s a clear distinction to be made between doing things right and doing right things. When a client, as one did, says, “My Finys team is like family,” you can be certain you’re doing right things.

JoAnna and I take our hats off to the entire Finys team. And we thank them for including us in their IAB.

It was a welcome contrast to much of what we’ve seen in our working lives.