In the few short years since cloud computing burst onto the scene, public cloud providers have pitched their services as comparable but less costly alternatives to enterprises' own internal IT systems. However, there's recently been a reversal in this thinking.

Many IT departments now are taking cues from the public cloud industry, seeking to replicate the providers' practices within their own private data centers. This includes offering services such as rapid provisioning of servers and storage, and ensuring the immediate availability of data and applications.

The rise of external and internal cloud is providing insurance IT executives with tantalizing new technology choices. As of late, the insurance industry, generally viewed as more conservative in technology decisions, has been catching up to other industries that forged ahead with cloud-based infrastructures.

In a recent survey of 262 IT managers, conducted for the Independent Oracle Users Group by Unisphere Research/Information Today Inc., a majority (60 percent) of companies across all industries either have or are planning private cloud implementations, while 40 percent use or are planning to use public cloud services. Among insurance companies in the sample, 36 percent are piloting or planning private clouds, while another 45 percent are piloting or planning to use public cloud services.

While private and public cloud formations both have advantages and disadvantages, it may be instructive for CIOs with on-premises assets to look at the public cloud model, at least in terms of the nature and accessibility of cloud services.

Public Cloud Takeaways

There are lessons that CIOs are learning from public cloud operations and applying internally, says Rich Hallman, SVP and CIO at EMPLOYERS. The workers' compensation insurer has virtualized many mission-critical applications with the intention of providing much of the same system availability and flexibility as the cloud, Hallman says. Virtualization also offers the ability to build systems on the fly much more quickly, or ramp up test, development or production servers literally in minutes, as opposed to days or weeks.

It may even pay to offer private cloud offerings that closely resemble public cloud services. Lauren Nelson, Forrester analyst, says many of the private clouds she has seen are not true clouds. As she said at a recent Interop conference in New York, many of these private clouds are missing essential components and need to be truly self-service, standardized, automated, shared and based on a pay-per-use model.

Shane Cassidy, VP and head of P&C North America for Capgemini, says private cloud computing carries more excess baggage than public cloud services.

"Private clouds can be more expensive, but a public cloud is easy to get into and out of. The private cloud is less so," Cassidy says, and ultimately public cloud will overtake private cloud. "There are a lot of tools coming out now that are specific to insurance, that look at real-time data encryption, solve data residency and data security issues. If customers get comfortable with that, it could minimize some of the cloud concerns," he says.

However, Hallman believes there are advantages to running services within a private cloud. At EMPLOYERS, CRM and collaboration systems now run within hosted private-cloud environments, and Hallman is bullish on the private cloud model.

"In the public cloud, you have limited visibility to the infrastructure and changes that are happening," Hallman says. "You have to be tolerant of potential changes that you're not a part of." Plus, as a public cloud is in a shared environment, there are potential issues with security, performance and availability, he adds. Ultimately, he says, public cloud offerings tend to be fairly limited. "From a price point, it's literally: you get what you pay for," Hallman says. On the other hand, private cloud allows for greater measurement of services availability and adoption within the organization, he adds.

"Private offerings are a bit more robust than public," Hallman says. "Not to say that public doesn't have those offerings, but I believe that the private offerings are a bit more granular to suit what your needs are versus what a general offering may be."

Hayward Tilton & Rolapp Insurance Associates Inc., an agency based in Anaheim, Calif., initially deployed applications within a private cloud, but has been gradually migrating its infrastructure to a hosted third-party cloud.

"We started with our own cloud, with our equipment, and pointing our data and storing our images," says Stephen Moriyana, EVP for Hayward, Tilton and Rolapp. In recent years, the agency has been moving data offsite, and about 80 percent of it is now hosted by Vertafore. "We're in the business to provide insurance services and risk management solutions for our customers," Moriyana explains. "We're not in business to be a data center."


Capabilities

Whether it's an onsite private cloud, or an outside hosted cloud, as public cloud practices become more ubiquitous, these new approaches are changing the role of IT, Moriyana says.

"The days of the big computer rooms are slowly going away. IT management is now shifting toward understanding services and programs connecting data, rather than having to worry about the physical needs of where the data is being stored."

To be successful, private cloud interfaces need to offer many of the same features and functionality that end-users have come to expect with public cloud services.

"Business end-users want resources comparable to public cloud resources. They want rapid provisioning, flexibility, temporary capacity and elasticity," Nelson says. The self-service and self-sufficiency aspect of public cloud computing also is appealing to end-users, which should be emulated within private cloud settings, she adds.

Nelson also says companies should treat cloud as a new service and not try to extend an existing data center infrastructure as a private cloud. Instead, launch it as a brand-new service. When it comes to measuring that success, she suggests not measuring it relative to your other services. "Your users will be comparing those services to public cloud," Nelson says.

In the process, IT is becoming an internal cloud provider within its own right, Cassidy says. "They're going to have to go that way in order to compete," he says, and this provisioning of services won't just be virtualized data center resources, either. It may be a mix of private and public cloud resources delivered through the IT organization. "That would include an internal private cloud leveraging external providers, through a series of partners, through cloud services organizations, or through a company's own cloud. Billing, underwriting, policy services may be in a public cloud or private cloud," Cassidy says.

Of course, the funding for private clouds differs from public clouds, which often can be procured with a credit card. Internal chargebacks are one way to compensate internal cloud providers for services accessed, but most companies have not adopted this approach. The IOUG survey, for example, found that allocating funds to private cloud ventures is still an open question, with only about one-third of private cloud organizations possessing a way to monitor usage for chargeback purposes, or "showback," for which costs per department or business group are illustrated.

Hallman says EMPLOYERS has been interested in eventually funding its private cloud services through chargebacks. "We have an initiative to do chargebacks to make different departments within the business understand the cost of the technology services they're using. It gives them better visibility around the use of the technology and its costs." Hallman's department currently shares performance and usage metrics with departments, particularly for claims and CRM applications.

The ability to leverage cloud internally and externally is a major shift in the underpinnings of the insurance industry. Achieving efficiency in this area is akin to a car manufacturer figuring out ways to produce more cars with far fewer facilities and far less overhead.

"When you think about an insurance company, what is it? It's a big IT shop," says Christopher Blatchly, an industry specialist who currently heads up the insurance vertical at Pegasystems. "Unlike a manufacturer, an insurance company's factory is in a data center someplace. They're manufacturing bits of data. As an insurance carrier, they don't have tangible assets. They have insurance policies. It's not the paper it's printed on; it's the data behind it."

Joe McKendrick is a writer and consultant specializing in IT, and a regular blogger for insurancenetworking.com.

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