Insurers Face Legacy System Exodus as Climate Risk Grows

Insurance companies will confront heightened pressure to abandon legacy systems in 2025 as climate-related risks intensify and customer satisfaction declines, according to new analysis from EIS, a San Francisco-based provider of cloud insurance platforms.

The forecast emerges as insurers navigate mounting environmental challenges, with subsidence claims surpassing flood claims in drought-affected regions of the UK, while repeated storms batter California and Florida. The trend signals a shift in the pattern of climate-related claims that insurers must adapt to.

"Inflationary pressures will subside in 2025, bringing long-standing challenges including market viability, plunging customer satisfaction scores, and coverage gaps, back into sharp focus," says Rory Yates, Senior Vice President of Corporate Strategy, Global at EIS.

The insurance industry’s technology transformation

The life insurance sector faces particular urgency to modernise its technology infrastructure as existing systems reach end-of-life status. Many carriers are exploring customer-centred models that can support diverse product offerings through digital channels.

Property insurers are developing data-driven approaches to tackle persistent underinsurance at the point of claim. These initiatives aim to prevent risks such as water damage while reducing customer churn rates, which are approaching critical levels.

The motor insurance market is expected to stabilise as inflation eases, though questions remain about long-term sustainability. Insurers are investigating embedded coverage options that adapt to multiple vehicle uses. This includes the development of self-service systems spanning quote generation to claims processing.

Distribution channels are undergoing significant changes, moving away from price-based competition. Insurers are investing in customer and advisor portals to create what EIS terms a "trialogue" between insurers, advisors and customers.

Climate response

Rather than withdrawing from climate-vulnerable markets, Rory advocates for insurers to expand their risk mitigation toolkit. This includes “proactively engaging customers in data-led risk mitigation, intelligent modeling, government partnerships and deeper customer engagement.”

The demographic shift towards millennials, projected to comprise 75% of the workforce by 2025, is reshaping distribution strategies. Financial institutions specialising in credit protection are positioned to lead the implementation of embedded insurance models.

Life and health insurers face particular challenges as traditional trigger points for policy purchases fade. The sector must address a structural decline while simultaneously managing technology transformation projects.

The distribution landscape is shifting away from what EIS describes as a "race-to-the-bottom" pricing model. Insurers are refocusing on advisory services and relationship building to differentiate their offerings.

Customer experience metrics are becoming central to performance measurement, according to recent research from Capgemini cited in the report. Insurers are responding by developing intelligent broker and advisor portals designed to deepen customer relationships.

AI implementation

While machine learning applications continue to mature, generative AI adoption faces obstacles. Many insurers lack the data infrastructure required to deploy large language models without introducing unacceptable risks to processes and customer interactions.

The report suggests that traditional machine learning and automation tools often provide more cost-effective solutions than generative AI for current insurance industry needs. The challenge lies in implementing these technologies responsibly while maintaining security and cost efficiency.

“The potential of Gen AI is clear. It can play a transformative role wherever we choose to let it. But that's not the real challenge. The question is whether it can be done responsibly, accurately, securely and affordably,” says Rory.

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