While cloud computing still elicits worries about data security and systems resiliency, many CIOs and industry observers report that carriers are getting more comfortable with the cloud and are beginning to see greater possibilities beyond simple cost savings. Now, both private and public cloud services are serving the needs of a number of insurance companies, and some analysts are even starting to advocate that insurance companies get into the cloud business themselves.
Overall, there has been a sea change across industries in attitudes toward cloud computing, as reflected in the results of a recent North Bridge Venture Partners survey of 785 companies. Companies are accelerating their trust in cloud solutions, with 50 percent of survey respondents "confident" that cloud solutions are viable for mission-critical business applications.
This confidence is increasingly being seen in the insurance industry, which now is engaging the cloud with the same levels of enthusiasm seen among banks, financial services, and for that matter, retailers and business service providers, observes Stanton Jones, analyst with Information Services Group (ISG). "There are very strong examples of insurance companies moving to SaaS [software-as-a-service] platforms," he says. "They are definitely getting more comfortable with cloud computing in general."
Scalability and business agility top the list of business cases to be made for cloud, as related in the North Bridge survey. The leading applications moving to the cloud include backup and archiving (43 percent), business continuity (25 percent), collaboration tools (22 percent) and big data processing (19 percent).
Backup and business continuity is certainly on the mind of Michael Anselmo, CTO of Narragansett Bay Insurance. The insurer operates two remote, cloud-based data centers to provide resiliency. "Our specialty is homeowners' policies," however, the company is headquartered in Rhode Island, which often is in the path of hurricanes, he says. "We need to ensure that we are up for our policyholders during hurricanes. The issue is that while we want to be supportive in the event of a hurricane, our biggest issue would be claims. During a hurricane, we're not selling policies, we're servicing claims." For that reason, all of Narragansett Bay's operations-including its phone systems-are in the cloud.
Insurance agencies also are seeing the advantages of cloud computing. Backup is a crucial cloud application at Grace/Mayer Insurance Agency Inc., which employs live, Web-based backup of its systems, as well as a third-party provider for its e-mail. "We don't use tape or anything-all our backups go to a local [network-attached storage] device, and then that gets replicated offsite," says Jim Vigotty, IT manager at Grace/Mayer. "I have a backup every 15 minutes."
Vigotty's team has actually been using Web-based backup for more than a decade, "before it was called cloud." Anything that needs to be recovered, he says, can be done within a matter of minutes from the cloud, he adds. Previously, to retrieve a file, he would have needed to mount the file from a tape, a process that could take up to an hour.
Cloud can be blazingly fast, and there are many issues that can be quickly remedied by available cloud solutions. For New York Life Insurance Co., the option was to go to a cloud provider for agents' document management requirements. "Agents out in the field were getting buried by paper," says Bruce Rector, owner and president of MuniMetriX, which runs the document cloud for New York Life. "They wanted to get rid of it. Its home office had a big giant system, but individual small agents couldn't have that, and it couldn't be rolled out to the field."
Through the cloud engagement, New York Life is able to maintain "the complete client files that agents have," says Rector. "They have the applications, then they have their fact finders and policy receipts, illustrations-everything dealing with the clients. They don't have paper files anymore. They still go out for onsite visits for various reasons; they want to visit the agent in the office, but all the reviews are now done in the cloud."
Security remains the primary inhibitor to adoption, with 55 percent of respondents to the North Bridge Ventures survey citing it as a concern, followed by regulatory compliance (38 percent) and vendor lock-in (32 percent). Data security is still a major concern among CIOs, particularly in the cautious insurance industry.
However, ISG's Jones argues that cloud security has matured greatly over the past one-to-two years, and furthermore, it's getting to the point where data may be more secure in the hands of an outside cloud provider than an internal IT department. "Major cloud providers know security is their business. If they can't prove that they have a secure platform, then they have no business," he says. "Not only are IT organizations getting more comfortable with cloud, I think sometimes they're finding that they're looking at their own operations and realizing that the cloud provider has a better security architecture and a better security footprint than they do."
In addition, much of the focus with cloud is now shifting from security to risk management, Jones adds. "The data security concerns are there, but I think they're a little bit more mature questions now-more about risks than about security," he says. "After you get past the traditional security concerns, then you start to look at risk. As organizations realize that not only is their data no longer on premises, but also potentially on the same infrastructure as other clients, they start to get into these risk questions, such as: 'What happens if we're subpoenaed, and we have to put a legal hold on our data?' or 'What happens if we have a personal information audit?'"
While cloud is maturing, many insurers' core systems may not be candidates as of yet for the cloud. For example, Richard Hallman, CIO of Employers Insurance, says cloud has been ideal for peripheral applications, but is not the right place for core systems such as policy administration or claims processing. "We're taking a hybrid approach, taking some of the more lower-risk, on-demand types of services to the cloud, but still keeping tier-one services internally," he explains. Employers has migrated its CRM, human resource information systems and online collaboration to cloud providers. With the online collaboration and video teleconferencing, "we previously had many systems internally that we hosted ourselves that required a lot of staffing, a lot of knowledge around how to keep up those systems," Hallman says.
While the potential benefits of cloud computing may be alluring, it still requires the same management and due diligence as any typical IT engagement-perhaps even more so. For example, as with any major IT platform, cloud needs to be well-managed and measured. "Make sure you have your service-level agreements (SLA)," Anselmo advises. "Make sure you do your homework and you have your SLAs in place. Make sure you put processes in place. Make sure you do your normal due diligence as you would for any infrastructure."
Building a base of support from the top and across the organization is critical to the success of a cloud engagement. Laura Hay, national sector leader for insurance at KPMG, recently issued a report that advocates insurance companies guide their cloud efforts through a "senior leadership council with representatives from across the organization to explore potential cost savings or revenue enhancing opportunities."
Hay also advises companies to document where services are being deployed, and to start small with the initial cloud project. "Choose one or two small, non-critical opportunities to help build knowledge and experience around managing cloud implementations. Develop a business case for further investment."
It's important to work closely with cloud vendors and build deep relationships-a cloud engagement should be more than a credit card swipe. "When you're moving much of your data and your business processes out to your vendor, you need to understand their security model, their operational model and their technical approach," says Hallman. "Because the cloud team is now a part of your staff. They're a part of your overall business model. You need to make sure that you have confidence in their ability to deliver and maintain a solution and service for not only internal customers, but also external customers."
The directions cloud can go in are virtually limitless. KMPG's Hay outlines ways cloud delivers value to insurance companies. Under the infrastructure-as-a-service (IaaS) model, for example, "insurance firms can lease or rent IT infrastructure to improve and outsource internal functions," she says. "This can increase speed to market and reduce IT development costs, as IT projects that usually take several months or even years to implement can now be implemented within a few weeks or months, and usually at less than half the cost of an internal server." For example, she illustrates, "an insurance firm might own and operate its call center while outsourcing processes like claims processing through the cloud. The firm would be able to add or reduce IT capacity based on the volume of claims processed."
In addition, SaaS-based services enable carriers to "leverage third-party tools such as customer relationship management (CRM), credit services and business information services."
Not only does cloud computing offer opportunities for more efficient operations and resiliency, but there are also avenues for new revenue opportunities for insurers. For example, Hay points out, "cloud computing can help insurance companies find opportunities to increase revenue by enabling them to change their business models and become a service provider through a SaaS or IaaS model. For example, insurance companies could provide cloud-based services to independent insurance agents or other companies."
The bottom line is that cloud affords insurers the opportunity to focus on what they do best-providing the best coverage and service to policyholders. "CRM is no longer a distractor for us," Hallman says. "Our cloud services enable us to capitalize on new opportunities, build differentiation and build efficiencies. Average policies are smaller today, and employment levels aren't where they use to be," he adds. "We need to become much more efficient in how we handle policies."
Joe McKendrick is a writer and consultant specializing in information technology, and a regular blogger for insurancenetworking.com.
Register or login for access to this item and much more
All Digital Insurance content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access