Insurer IT spending has climbed steadily for a decade. The 2026 number tells part of the story: The average IT spend ratio reached 4.6% of direct written premium, up from 4.5% in 2025 and 3.7% a decade ago. But the real story isn’t the budget number. It’s the tension between what insurers are trying to accomplish and what’s getting in their way.
These insights come from our survey of CIO and technology leaders, covering both large and midsize carriers across P/C and L/A/B sectors. What emerges is a picture of ambition running up against execution constraints.
Core Modernization: Still the Defining Priority
Core system modernization remains the defining IT priority for insurers across the board. Large carriers are in the thick of it, and two-thirds are planning or continuing PAS replacements in 2026. Midsize carriers show similar commitment, with roughly a third either planning or continuing core replacements.
Core dominates the budget—it’s the largest spending category across run, grow, and transform spending alike. For large insurers, core represents more than half the total IT budget. For midsize, it’s roughly half. Some carriers are running elevated CapEx cycles to get these transformations done, a temporary elevation they don’t expect to sustain.
AI Has Moved to Production
The big shift this year is that AI has stopped being experimental. Large language models have reached near-universal deployment among both large and midsize insurers. Autonomous processing—a brand-new category in this year’s study—is already showing significant adoption at both groups of insurers.
For large insurers, AI scaling is now strategic. More than half plan major enhancements to AI-enabled processing in 2026. Half are deploying cross-function AI solutions. This isn’t just about trying new tools. It’s about embedding AI into operations as a mechanism for cost control under margin pressure.
Midsize insurers are at a different stage in their AI implementations. They’re building the data foundation first—roughly a third of their transformation budgets are dedicated to data infrastructure and analytics. They recognize that data quality and governance must come before they can scale AI effectively.
The Execution Gap
Carriers unanimously recognize their priorities such as core modernization, data infrastructure, AI at scale. But execution is another story. IT operations constraints rank as the top challenge for midsize insurers. Data has jumped to the top challenge spot for large insurers, and security rose in priority for midsize insurers only.
The tension is clearest with data itself. It appears simultaneously as a top priority and a top challenge. Carriers broadly know what they need to build. Bandwidth constraints, data quality gaps, and governance demands are limiting their ability to deliver.
Large Versus Midsize: Sequencing, Not Direction
Large carriers have the resources to invest in cross-functional AI and scaling. They’re using hosted infrastructure and split cloud strategies that give them control and flexibility. Midsize carriers have to be more pragmatic—they favor SaaS over hosted services, public cloud over private, because vendor-managed infrastructure lets them do more with constrained IT teams.
But both are heading to the same place: embedded AI, modernized cores, and scalable data infrastructure. Midsize is a step or two behind on the deployment curve, but they’re not going in a different direction.
What Matters for Technology Providers
Core PAS, AI-enabled processing, BI and data infrastructure, and underwriting workbenches are the top priorities among insurers. This investment concentration isn’t speculative. It reflects where CIOs are actually spending.
The opportunity for differentiated solutions lies in the execution gap. Carriers are executing ambitious technology agendas with constrained IT teams. Solutions that reduce implementation burden, accelerate data readiness, or deliver AI capabilities without adding governance complexity address the real constraint.
Conclusion
In conclusion, the right question isn’t how much to spend, but what results a given investment achieves. For insurers benchmarking themselves against peers in 2026, the answer has never been more consistent—or more demanding to execute.
