Digital Engineering Reshapes Insurance Operations, Innovation

Incumbent insurance companies are adopting digital engineering to replace legacy systems with modern platforms that enable faster product delivery and improved policyholder engagement, according to a new research report published today by Information Services Group (ISG) (Nasdaq: III), a global AI-centered technology research and advisory firm.

The 2025 ISG Provider Lens global Insurance Services ― Strategic Capabilities (Insurance Digital Engineering Services) report finds that insurers are contending with technology foundations built over decades that incur rising maintenance costs, restrict integration of analytics and AI and slow the introduction of new products. Many carriers are investing in modernization to reverse stagnant premium growth and address declining policyholder satisfaction that may be caused by fragmented channels and outdated tools.

“Digital engineering has become essential to insurance industry transformation,” said Dennis Winkler, director, Insurance, at ISG. “Incumbent insurers need modern architectures, development methods and organizational structures to compete with digital-first challengers. Digital engineering is the core capability for succeeding in that transition.”

Insurers are upgrading core systems with cloud-native platforms that improve agility and reduce operating friction, the report says. Many are replacing older systems for policy administration and claims or refactoring components to overcome their dependence on mainframes. These upgrades allow for phased transitions that reduce operational risk while improving the speed of service delivery. Carriers that adopt modern platforms report better alignment between business and technical teams and more consistent product updates in response to market and regulatory changes.

Modernization efforts increasingly rely on API-first integration to unify data and streamline interactions across applications and channels, ISG says. Insurers are implementing API strategies that turn functions such as quoting, binding and claims filing into reusable services. These services enable seamless handoffs between digital and agent-supported touchpoints, reducing friction for policyholders and improving transaction accuracy. Integration platforms are helping carriers coordinate workflows across multiple systems without compromising data integrity.