Over the next decade, the fully tech-enabled insurer will bear little resemblance to today’s organization. Five trends, individually and in combination, will have a seismic impact.

A handful of accelerating technology trends are poised to transform the very nature of insurance. In auto insurance, risk will shift from drivers to the artificial intelligence (AI) and software behind self-driving cars. Satellites, drones, and real-time data sets will give insurers unprecedented visibility into the risk around facilities, leading to greater accuracy. Claims processing after natural catastrophes will be automated, infinitely scalable, and lightning fast. The life insurance industry will bring to market “wrapped” products that seamlessly adjust coverage based on the evolving needs of their customers.

These scenarios aren’t science fiction. The technologies behind them already exist, and innovative offerings could become mainstream in the next decade. Our analysis explored the impact of ten rapidly accelerating trends most relevant to competitive advantage.1 Of these ten, five are poised to reshape the insurance landscape: applied AI, distributed infrastructure, future of connectivity, next-level automation, and trust architecture. The prevalence of these technologies also means insurers could face heightened competition from a new wave of digital attackers, as evidenced by the large number of greenfield insurers founded in the past three to five years.

To survive, incumbents will have to adapt their operating models, products, and core processes to a new reality. All executives must understand the impact of these technologies and ensure their organizations are positioned to unlock their potential. Leaders will need to let go of entrenched perceptions and business models and embrace new ways to manufacture and distribute what will in many cases be fundamentally different products.

Trends in tech shaping the future of insurance

The past few years have seen the emergence of core technology trends that are affecting nearly every industry. A multitude of technology advancements and shifts are reshaping products and services.

McKinsey examined a range of factors to identify the ten technology trends that matter most to top executives across industries (Exhibit 1). For every trend, we calculated a momentum score based on the growth rate of the technologies underlying the trends, which we derived from an in-depth analysis of six proxy metrics: patent filings, publications, news mentions, online search trends, total private investment, and the number of companies making investments.

In assessing how these trends are affecting the insurance industry—across lines and core processes—we pinpointed five that are likely to have an outsize impact over the next few years (Exhibit 2).

Applied AI

While many carriers are experimenting with AI, few have truly scaled their capabilities across the enterprise. As AI becomes more prevalent and algorithm creation becomes commoditized, carriers will be able to more fundamentally reengineer core processes to be more predictive in nature. AI will disrupt distribution, underwriting, claims, and service as core processes become AI-enabled, creating a “human in the loop” model that increases productivity and allows for higher-quality touchpoints with customers. Carriers have yet to fully realize the potential of their data assets—for example, claims histories and distribution interactions. In addition to reengineering core processes, leading carriers and ecosystem players will use the advent of AI to create products and services based on data and analytics.

Distributed infrastructure

Insurers around the world have significant technology debt, with many core processes weighed down by extensive on-premise legacy technologies. As cloud matures, a rapid shift to the cloud for all core systems will help insurers to be more nimble in launching new products and creating better customer service. Cloud will also be critical for enabling the type of compute power that is needed to fully understand and make use of the incredibly large data sets (such as tens of millions of claims data points). As ecosystems continue to develop globally, cloud-native insurers will be best positioned to act as ecosystem orchestrators—acting as a connecting hub among customers, distributors, insurtech, healthcare providers, carriers, and reinsurers, among others.

Future of connectivity

In many markets, insurers have begun using telematics to evolve the core auto product. The wider adoption of IoT could usher in a similar reshaping of product in life, health, property, and commercial lines. Increasing the frequency and specificity of data being shared through IoT devices helps customers provide a more accurate view of their needs and insurers better understand risk, both at time of purchase and an ongoing basis. The increased prevalence of 5G allows this data to be shared at lower latencies and helps insurers provide real-time services to clients.

Next-level process automation and virtualization

Insurers have for many years invested in robotic process automation to help automate processes, especially in back-office operations, but emerging technologies will enable carriers to fundamentally rethink product and service. For example, industrial IoT can enable real-time monitoring of equipment to allow for predictive maintenance before claims happen. Similarly, digital twins and 3D and 4D printing have the potential to transform the claims experience for all physical damage areas.

Trust architecture

Across lines, insurers handle sensitive customer information, and the ongoing evolution of products and services will require customers to share even more of this information with carriers. New technologies will allow carriers to more effectively manage risk and make use of complex customer data—a critical step in evolving to a “predict and prevent” model of insurance where data is shared more frequently between parties with insurers playing a more active role in claims prevention. As blockchain becomes more widely adopted, it will help carriers more effectively manage customer data in a safe and consistent manner and simplify current issues such as identity management and verification. Zero-trust security and similar approaches will help carriers create resilient networks that protect against cyber intrusions.

The tech trends highlighted here will reshape the industry – in part two of this article, we will offer deep dives on the impact of selected tech trends, focusing on the specific opportunities and threats to various insurance lines of business.