Legacy tech holds back pricing innovation

A survey of underwriters and actuaries in the UK and US commissioned by pricing platform hyperexponential has found that the overwhelming majority (96%) believe their technology infrastructure needs improvement.

This is up from the 84% figure the previous year, suggesting that the problem is getting worse.

It also comes at a time when cutting-edge technology like artificial intelligence and machine learning are grabbing the headlines. But for insurers, the bigger problem is the state of their underlying infrastructure that leaves actuaries and underwriters manually inputting data for three hours a day.

The State of Pricing 2024 report did have some positive findings, namely that just 8% of insurers are relying solely on traditional spreadsheets and Excel, suggesting that the majority are using more modern pricing platforms.

However, nearly half (47%) of the 350 commercial underwriters and pricing actuaries surveyed state that integrating new platforms with their core legacy technology remains a key hurdle and stops them pricing risk optimally.

This failure to address outdated underlying technology in the pricing process causes severe efficiency losses, wasted hours of skilled labour and lack of collaboration between the most fundamental players in the pricing process, according to the report.

For example, just one in five (19%) are automatically ingesting external data through pricing models. And in addition to three hours a day of manual input, more than three-quarters (76%) of underwriters take over a month to build a new pricing model.

There is also an impact on insurers’ bottom line – almost half (45%) see legacy tech as a barrier to profitability, and a third (34%) report that it is causing a loss of business to competitors, which is up from 29% in 2023.

“The message from both actuaries and underwriters is clear,” said hyperexponential’s CEO and co-founder Amrit Santhirasenan. “They want to see significant operational improvements. Manual tasks like data cleansing and rekeying can be alleviated with the right pricing technology and rich data sets.”

Santhirasenan also stated that the insurance industry is lagging behind other sectors when it comes to replacing outdated legacy technology and adopting new digital technology like AI.

“While the buzz around AI is inescapable and the potential benefits undeniable, its true value can only be fully harnessed when insurers get their own houses in order.

“The reality is the sector’s current pricing infrastructure doesn’t have the capacity to support this technological innovation, and an over-reliance on archaic, inefficient, and ineffective processes and technology is proving a major barrier.”