Life/Annuity/Benefits carriers must balance ambitious technology goals with practical operational realities as the industry continues to evolve in its approach to technology investments. Datos Insights recently published their annual report on Life/Annuity/Benefits Insurer IT Budgets and Projects for 2025 which shows that insurers are strategically increasing their IT spending while facing challenges in resource allocation, project execution, and talent management. This post explores the key findings from this study and what they mean for the future of L/A/B insurance technology.
AI Investment Expands Beyond Traditional Machine Learning
The study reveals how insurers are approaching artificial intelligence (AI) investments for 2025. The investment patterns reflect a balanced approach between established AI technologies and emerging capabilities. Traditional ML models, which improve risk assessment and fraud detection algorithms, continue to receive significant investment. However, large language models (LLMs)—commonly used for chatbots and automating underwriting and claims processes—are continuing to grow significantly within the industry.
Voice recognition and unstructured text analysis are the most widely piloted AI technologies among L/A/B insurers. Voice recognition applications focus on sentiment analysis and customer service improvements, while unstructured text analysis is being deployed for document and form processing. Notably, while some insurers are already enhancing or growing their LLM capabilities, approximately 27% are still in the piloting phase, indicating a measured approach to this relatively new technology.
The diversity of AI investments suggests insurers are strategically deploying different technologies to address specific business challenges rather than pursuing a one-size-fits-all approach to AI adoption.
Shifting Priorities: Internal Operations and Distribution Support
The report shows a significant shift in insurers’ priorities for 2025. While distributor ease of doing business remains a top concern, optimized internal workflows has emerged as an equally important priority, representing a substantial jump from previous years. This change reflects the industry’s growing focus on operational efficiency while maintaining competitive distribution capabilities.
IT operations has moved to the top of the priority list for L/A/B insurers, aligning with the need for streamlined internal processes. Digital capabilities remain crucial as insurers continue to build on their digital sales and distributor support systems. Core system modernization also features prominently among insurers’ priorities, consistent with ongoing replacement activities across the industry.
This dual focus on internal operations and external distribution support demonstrates that insurers recognize the need to balance customer-facing innovations with behind-the-scenes efficiencies. As market pressures intensify and budget constraints become more pronounced, optimizing workflows has become essential for maintaining competitive advantage.
Resource Challenges: Staffing, Execution, and Cost Management
Perhaps the most pressing challenges facing insurance IT departments in 2025 center around resource management. The report indicates that insurers anticipate significant staffing and execution constraints as they attempt to maintain ambitious project schedules without adding substantial staff. Cost management, talent acquisition/retention, and IT operations all rank prominently among insurers’ concerns.
The data shows continued investment and growth in external IT staffing. Some insurers are reaching as high as 85% external staffing, reflecting a growing trend toward outsourcing IT management, particularly among larger organizations.
These findings suggest that while IT budgets are increasing, insurers are facing the reality of having to do more with relatively static internal resources. Projects will need to be carefully orchestrated, and business-IT alignment becomes paramount as companies strive to maximize the value of their technology investments with limited human capital.
Looking Ahead: Strategic Technology Investment
Technology continues to enable all aspects of the insurance value chain, from sales and distribution to risk management and operational efficiency. However, realizing these benefits requires continued investment in both systems and people. By approaching technology spending with a clear focus on business outcomes rather than merely keeping pace with industry averages, insurers can create capabilities that deliver real impact in an increasingly competitive marketplace.
Insurance IT leaders should consider these actionable steps for 2025:
- Conduct a data and AI maturity assessment to identify where your organization stands relative to targeted business directives and determine which technologies align with your specific business challenges
- Develop a resource optimization roadmap that balances internal talent development with strategic external partnerships.
- Implement governance frameworks that ensure technology investments directly support both operational efficiency and distribution effectiveness
By approaching technology spending with a clear focus on business outcomes rather than merely keeping pace with industry averages, insurers can create capabilities that deliver measurable impact in an increasingly competitive marketplace. As the industry navigates these challenges, those who can effectively balance innovation with operational excellence will be best positioned to thrive in the evolving insurance technology landscape of 2025 and beyond. To learn more about the behavior of L/A/B insurers, their budgets, and their priorities for the coming year as context for their strategic planning activities, please see our full report: Life/Annuity/Benefits Insurer IT Budgets and Projects, 2025.
