How the Insurance Industry Can Tap into the Power of the Cloud
In an effort to hedge their bets, many insurers are taking to the cloud and capitalizing on its flexibility, rapid deployment, and cost-efficiency — and the rest of the industry may be soon to follow.
Like many industries, insurance is undergoing some monumental changes. New technologies are dramatically altering how routine business is conducted, as consumers now demand constant online availability and seamless customer experiences. This has obligated insurers to develop sophisticated services in shortening timeframes. As Deloitte puts it, the mindset is “disrupt or be disrupted” — embrace new methodologies or eventually fall victim to them.
Of course, enduring market pressures is just one of the many costs of doing business, and decision-makers in insurance organizations are looking for commonsense solutions to fill technical gaps. One such solution, as yet largely untapped, is the cloud. Many insurance companies are using cloud computing to satisfy the need for rapid scalability and agility without accruing the attendant costs of on-premise infrastructure.
But merely purchasing cloud services usually isn’t enough to reap their full potential: insurers will need to pay close attention to how capacity and storage is allocated to keep costs at bay.
That isn’t to say that the cloud has gone unnoticed by the industry. As PropertyCasualty360 reports, 58% of core-supporting applications purchased by insurers last year were cloud-based, as were 36% of core systems themselves (core referring to underwriting, claims, billing, and other administrative functions). For an industry that tends to resist rapid changes — relying as it does on physical and traditional channels — this movement is a significant one.
As an Accenture White Paper explains, many insurance companies are drawn to the cloud as an easy remedy to many of the challenges that are unique to the industry. On a basic level, it enables insurers to respond elastically to the peaks and valleys of IT demand as they grow their digital services. This is crucial, because a great deal of online usage across channels is unprecedented for many carriers — without experience or the necessary software, demand becomes virtually impossible to predict.
With the cloud as a common platform, it also becomes much simpler to integrate new services, apps, or initiatives between departments and companies. Where proprietary software would need to be individually tweaked for compatibility with other platforms, software-as-a-service (SaaS) options are often universally integrable out-of-the-box, and are much faster to deploy.
Such services are also attractive to smaller, “Tier 2” insurers because they allow them to compete with large, multinational carriers in markets that would have been impossible to enter if they were they running their own infrastructure, as Wipro writes. Conversely, this creates additional and unexpected challenges for more established companies, and therefore, more incentive to purchase cloud services.
In general, insurance companies are reckoning with the fact that the industry is experiencing unprecedented operational changes. Digital channels are gradually replacing the physical mainstays on which companies once depended, at a rate Bain predicts could more than double within three to five years. But although the cloud is seen by many as the obvious solution, it also comes with its own set of challenges — challenges decision-makers will have to address to keep costs low.
When IT capacity needs are difficult to predict, companies tend to play it conservatively and over-allocate their resources, generally at a significant, avoidable cost. Unfortunately, without closely monitoring their capacity and storage usage, such overuse can be challenging to identify. In response, many companies are employing third party monitoring tools, such as TeamQuest’s Vityl suite of performance management software, which enable IT professionals to right-size IT resources, predict performance bottlenecks in advance, and easily report progress to executives with a single dashboard.
On the whole, the cloud will likely prove to be incredibly useful for the insurance industry, enabling digital transformation without overhauling the business. Of course, the cloud also comes with its hazards — but fortunately for insurers, they’re better than anyone at mitigating financial risk and delivering long-term value.