As 2025 approaches, the insurance industry finds itself at a critical juncture. Over the past decade, claims departments—once relegated to the back seat of innovation—have come under increasing scrutiny. In 2015, life and annuity claims processes were manual, fragmented, and burdened with aging technology. By 2020, the COVID-19 pandemic forced insurers to confront these shortcomings, driving some to embrace modernization. Now, as artificial intelligence (AI) reshapes the landscape, the industry must ask itself a sobering question: How much progress have we really made?
This question is particularly urgent when viewed through the lens of the “race to the bottom,” a term borrowed from financial services. It describes a dangerous cycle of prioritizing cost-cutting over long-term investment, often at the expense of customer experience and operational resilience. In the world of claims, this manifests as reactive approaches to modernization—quick fixes that fail to address systemic inefficiencies.
2015: The Starting Line
In 2015, claims departments were in desperate need of transformation. According to Celent’s Best Practices in Life Claims report, underinvestment in technology and reliance on manual workflows created a process riddled with inefficiencies. Claims were treated as transactions, not opportunities to build trust. For customers, the process was slow, frustrating, and opaque. Yet expectations remained low because alternatives were few.
2020: A Wake-Up Call
The COVID-19 pandemic exposed just how fragile these outdated systems were. Surging claim volumes, remote workforces, and the growing demand for digital interactions left many carriers scrambling to adapt. Those who had invested in automation and cloud-based solutions weathered the storm, while others faced mounting complaints and operational bottlenecks.
For the first time, modernization was no longer optional. But the response was uneven. Some carriers embraced strategic innovation, while others fell into the trap of cost-cutting—outsourcing claims operations and delaying technology investments to save money in the short term. These decisions offered temporary relief but often led to long-term erosion of trust and loyalty.
2024: A New Wave of Transformation
As AI takes center stage, the potential for transformation is undeniable. Machine learning and automation tools are streamlining everything from document processing to fraud detection, reducing turnaround times and improving accuracy. Predictive analytics offer insights into claims trends, enabling carriers to proactively address issues. Personalization is becoming a reality, as AI tailors the claims experience to individual policyholders.
Yet, for all its promise, AI cannot fix foundational issues. Data silos, fragmented systems, and resistance to change still plague many carriers, preventing them from fully leveraging new technologies. Customers, whose expectations are shaped by seamless experiences in other industries, are increasingly unwilling to accept delays or inefficiencies.
The Stakes of the Race
This brings us back to the “race to the bottom.” Carriers that prioritize cost-cutting over meaningful investment in modernization risk falling into this downward spiral. The short-term gains of outsourcing or delaying transformation are quickly overshadowed by customer attrition, reputational damage, and missed opportunities.
Consider industries like retail, where companies that resisted e-commerce saw themselves outpaced by digital-first players like Amazon. The lesson is clear: delaying modernization for short-term savings risks irrelevance in the face of competitors who innovate boldly.
Meanwhile, insurers that view claims as an opportunity to build trust—rather than just an operational necessity—are differentiating themselves. Metrics highlight the urgency: policyholders experiencing delays or poor communication are 3x more likely to switch carriers, while efficient and empathetic claims handling increases loyalty by as much as 30%.
Success stories abound for those willing to lead the race to the top. A major carrier, for instance, adopted a configurable claims platform integrated with predictive analytics, dramatically reducing processing times from weeks to hours. The investment wasn’t just technological; it was cultural—aligning employees, systems, and processes around a shared goal of delivering exceptional service.
Looking Forward: A Call to Action
The past decade has revealed a fundamental truth: Claims are more than operational necessities; they are moments of truth for customers—moments that can make or break loyalty. To thrive in the future, carriers must take bold, strategic steps to modernize, breaking down silos, integrating processes, and embracing technology that enhances efficiency and empathy.
As customer expectations continue to rise, the industry must move beyond piecemeal approaches. It’s no longer enough to react; carriers must be proactive, anticipating needs and leveraging technology to deliver seamless, transparent, and personalized experiences.
The question for the industry isn’t just whether we’ve progressed since 2015, but whether we’ve done enough to ensure we’re not merely surviving—but leading—in a rapidly evolving landscape.
The race to the bottom is a choice. The race to the top requires carriers to begin where theta re today, with courage, strategy, and a commitment to excellence. Which race will you run?
Benekiva
