The insurance industry continues its steady march toward digital transformation, with property and casualty (P/C) insurers making strategic adjustments to their IT budgets for 2025. Datos Insights recently published the annual report on Property/Casualty Insurer IT Budgets and Projects, 2025. This post explores the key findings from this study and what they mean for the future of P/C insurance technology.
Core System Modernization Focuses on In-Progress Transformations
A significant finding from the report is that core system modernization activity is primarily focused on continuing in-progress transformation projects rather than initiating new ones. More than half of large insurers and 40% of midsize insurers plan to continue in-progress system replacements in 2025, with relatively few starting new core replacement projects.
This trend suggests the industry is in a phase of executing and completing existing transformation initiatives rather than embarking on new ones. Large insurers are investing most heavily in replacing core policy systems and claims, while a sizeable number are planning major improvements to enterprise data and analytics. For midsize insurers, nearly half plan major enhancements for data and analytics capabilities of all types.
Claims and billing systems emerge as areas of particular strength for large insurers, reflecting the benefits of previous replacement and transformation efforts. This strategic focus on completing in-progress modernizations before starting new ones indicates a mature approach to managing large-scale technology investments and transformation risk.
Business Priorities Shift Toward Cost Control and Efficiency
Perhaps the most notable finding is the significant shift in business priorities among large P/C insurers for 2025. Reduced operating expenses have surged to the top priority, followed by optimized internal workflows and innovation leveraging insuretech. This represents a marked change from 2024’s top priorities, which were business intelligence/analytics, distributor ease of doing business, and speed to market for new products.
This reprioritization reflects a strategic pivot toward operational efficiency and cost management. For midsize insurers, priorities remain more consistent with previous years, with business intelligence/analytics and optimized internal workflows tied for first place, followed by distributor ease of doing business.
These changing priorities are mirrored in the challenges insurers anticipate facing in 2025. IT operations (including project prioritization and delivery capability), talent acquisition, and cost management ranked prominently among insurers’ top concerns. This suggests that while P/C insurers plan to move forward with strategic commitments, their IT departments may struggle with resource constraints and project bandwidth.
AI Investment Accelerates, Particularly in Language Models
Despite budget constraints, artificial intelligence (AI) investment continues to accelerate across the P/C insurance sector. Nearly 60% of large insurers who responded to the study plan significant growth in large language model capabilities, with almost all insurers across size categories either growing or piloting AI technologies.
Unstructured text ingestion, critical for extracting useful information from forms and documents, is already deployed at more than 80% of P/C insurers who responded to the study, with most planning to expand these capabilities further. Traditional machine learning also remains a crucial investment area, with nearly three-quarters of large insurers and half of midsize insurers reporting ongoing capabilities development.
The enthusiasm for AI, particularly generative AI technologies like large language models, highlights insurers’ recognition of the transformative potential these tools offer for improving efficiency, enhancing customer experiences, and generating competitive advantages.
Looking Ahead: Balancing Costs With Competition
As P/C insurers navigate 2025, they face a balancing act between controlling costs and maintaining technological competitiveness. Large insurers appear to be focusing on consolidating previous investments and optimizing efficiency, while midsize insurers continue to invest in closing capability gaps, particularly in analytics and AI.
As the industry continues to evolve, those who can effectively align their technology investments with business priorities while navigating resource constraints will be best positioned to thrive in the coming years. To learn more about the behavior of P/C insurers, their budgets, and their priorities for the coming year as context for their strategic planning activities, please see our full report: Property/Casualty Insurer IT Budgets and Projects, 2025.
