Southeast Asia insurers risk profit hit from weak data systems

Igloo CEO says outdated infrastructure limits AI gains despite rising spending.

Southeast Asian general insurers could lose up to four percentage points in profitability if they deploy artificial intelligence (AI) on outdated data systems, as weak infrastructure limits gains from automation.

“If the right investments are made in AI over a period of three to five years, you should definitely see this going up by 300 to 400 basis points,” Raunak Mehta, co-founder and CEO at insurance technology firm Igloo, told Insurance Asia.

That growth potential is not uniform, he said, and insurers that fail to upgrade systems might not see similar gains.

“General insurers in Southeast Asia operate at very high combined ratios,” he said by telephone. “Hence, they operate in wafer-thin net incomes a lot of times.”

AI spending is rising across the sector. Investment could increase from about 0.6% of revenue in 2025 to 1.9% this year, according to a March report by Boston Consulting Group, Inc.

Only about a third of property and casualty insurers recognise the role of AI across workflows, even as it can cut costs and support premium growth, it pointed out.

AI can reduce the cost of handling claims, detect fraud earlier, and limit overpayments, Mehta said, adding that it could also lower loss ratios by improving risk selection.

“It will definitely go a long way in bringing down the loss ratio by cutting down fraud and, in a way, doing a better job of reducing adverse selection,” he said.

A separate outlook by KPMG International Ltd. showed insurers remain confident despite economic and climate risks. About 82% of insurance CEOs said they are confident in company growth, up from 74% a year earlier, whilst 78% are confident in the sector.

Mehta said that optimism should be balanced against operational limits.
“You need to separate the hype layer from what I call the infrastructure layer,” he said, noting that many insurers still rely on systems that are decades old, requiring extensive upgrades before AI could be applied effectively.

Igloo processes about 90 million policies a month, serving more than 50 million customers across the region, Mehta said.

KPMG said AI remains a priority, with 73% of CEOs ranking it as a top investment area and 67% planning to allot 10% to 20% of budgets to analytics, automation, and generative AI.

Cybersecurity remains a key concern, with 83% of executives identifying cybercrime as the biggest threat.

Mehta said faster systems don’t necessarily increase risk, noting that many cyber incidents stem from social engineering rather than system speed. He added that firms should focus on data quality and internal systems to support decision-making.

“While we are not building any foundation models ourselves, what we are focused on is the proprietary data that we have, how we are utilising it to extract enterprise-grade knowledge and decision-making,” he said.