New Era in Property and Casualty (P&C) Insurance Cloud Computing

Abstract

Insurance is a dynamic industry, with evolving customer demands, increasing competition, ever changing regulatory controls, and technological advancement. Cloud, mobility, and advanced analytics are transforming the way insurance companies offer value to their customers. As competitive pressures increase, insurance companies are increasingly turning to technology to stay ahead. Many are looking to the cloud, along with other technologies, to reinvent their business model, offering new services and creating direct, multi-channel relationships with customers.

Only insurance companies that recognize the value of strategic integration of compliance, sales, and operations systems with cloud computing are able to successfully manage changing environments and achieve sustainable business growth.

Walk in the Cloud - Virtual Computing Services in P&C Insurance

The insurance industry faces daunting technology challenges, including limited resources, aggressive timeframes, and often-unrealistic demands from business stakeholders. In rapidly changing markets, leaders must reduce costs, increase service quality, and position for growth. The changing regulatory environment and cumbersome legacy applications make these challenges even more acute.

Like most industries, P&C insurance has been using cloud computing services for their non-core office and support functions only, primarily using Software as a Service (SaaS). They use these services for email and other business support functions like sales and service support, collaboration, file sharing, and Web conferencing. Most industries currently use public clouds for their non-core office and support functions. However, private clouds are the preferred model to host core business specific applications, as they are more secure.

In this changing business environment and the challenges that it brings, there is a need to understand how the technological support of cloud computing is relevant to P&C, what are the challenges and benefits of implementing a cloud solution, and how best to design and deploy a cloud computing strategy.

The Changing Insurance Skyline

The shift towards cloud computing is yielding rich reward for insurance companies, despite the challenges it poses. Perceived cost savings, operational flexibility, and faster time-to-market are the key benefits of cloud computing for P&C insurers, while data privacy and regulatory compliance are the main inhibitors to widespread adoption.

Cloud Puller: Unmatched Benefits of Virtualization

Insurers looking for an easy-to-deploy, integrated solution that can help them stay on top of the changing business environment are discovering the benefits of cloud, which include:

Decreased Cost: P&C insurance companies, impacted by the financial crisis, realize they cannot depend on investment income to sustain profits. A cloud infrastructure solution, which increases reusability and sharing (due to virtualization), and reduces the cost of IT ownership, provides a viable and cost-effective answer. With cloud, they can achieve profitability in these times of reduced premiums and decreased investment income, and faster go-to-market to stave off competition.

Enhanced Business Agility: Cloud technology enables insurers to maintain a lean, yet highly agile and efficient IT infrastructure that provides IT services on demand. This further enables business units to consider a variety of innovative business solutions that can be brought quickly into operation, as needed.

Quick Deployment: Shortening the time to implement new IT applications is the most important requisite in the P&C insurance industry. An increasingly competitive global insurance market—where insurers are under pressure to reduce the time-to-market for new products and services—is driving a higher focus on achieving IT agility and shorter deployment timelines.

Expanded Global Footprint: Many insurers are seeking to expand their global footprint to reduce the risk of over dependence on any particular market. These insurers need the high level of flexibility and standardization fostered by various cloud computing services, facilitating smoother and cheaper integration of ‘greenfield’ operations, acquisitions, and joint ventures.

Gathering Storm: Barriers to Cloud Adoption

The delivery of cloud services is opening up a Pandora’s Box of security, privacy, tax, and compliance challenges for users and providers alike, and inhibiting migration to the cloud. The challenges include:

Control Concerns: Instead of controlling the IT environment directly with defined specifications, cloud users rely on their Cloud Service Providers (CSPs) and Service Level Agreements (SLAs) to manage their IT infrastructure. This requires skills that IT organizations typically do not possess today, so they reinvent themselves to make a smooth shift. Additional challenges stem from the loss of control over and lack of transparency into infrastructure provided by vendors (i.e. CSPs) and the movement of cloud users to cloud services from in-house or traditional outsourcing models.

Information Security Governance: Opinion is divided on whether protecting corporate data in the cloud—to be certain it is there when needed and to secure it from unauthorized access—is more difficult than doing so on owned systems.

Culture and comfort aside, simply communicating data over the Internet, as opposed to keeping it entirely within a private corporate network, may increase data vulnerability. In addition, the CSP business model involves shared infrastructure among clients and distributing and managing IT workloads among several physical machines and often, geographically dispersed data centers. This means that cloud users may not be able to determine precisely where their data is located or how that data is protected. The shared infrastructure issue effectively links the security fate of all users in a given cloud in a sort of unintended community. These issues were cited in a recent European Commission report as the key reasons why cloud computing will require entirely new security governance models and processes.

Privacy Concerns: Personal data stored in the cloud can be breached more easily than if stored in-house—giving rise to major security and privacy concerns. Going beyond data protection, the core privacy problem for enterprise businesses moving to cloud is that privacy regulations differ from country to country. Cloud computing can complicate the safekeeping of personal information of customers, business partners, and employees, both with respect to the organization’s own legal and ethical requirements and the privacy regulations of all the jurisdictions in which they do business or through which their cloud travels.

Regulatory Compliance: Cloud services are delivered by ‘virtualizing’ hardware and software that could theoretically be located anywhere in the world. Thus, cloud computing raises new questions about whose rules and regulations are to be followed.

Lack of Standards: Many standards are required to simplify interoperability among cloud providers, and between enterprise systems and cloud services, but few exist. The lack of standards may also pose obstacles to recovering data, either for the purpose of legal discovery or for migrating from one CSP to another.

The Silver Lining: Best Practices for Smooth Migration to Cloud Computing

Insurance companies need not be deterred by the burst of challenges that follow efforts to migrate to the cloud. Adopting best practices can help them navigate this brand new growth path with caution and success.

Prioritize List of Apps Understand the condition and scope of the entire IT infrastructure and application portfolio to create a prioritized list of what should go on the cloud and what will likely always have to remain in-house because of security and regulatory concerns. Another determinant is the lifecycle of the application. If an insurer knows that one of its applications is due for a major upgrade program, replacement or retirement within the next two years, that could well be the trigger to move to the cloud.

Set up Clear Governance Structure Many organizations have rules and structures in place that govern how IT decisions are shared between departmental leaders and IT executives. These are used
to define who inside and outside the IT organization should be engaged in decisions on cloud computing. Review the IT partner When dealing with cloud services, SLAs are crucial because cloud computing entails reliance on third parties. Thus, choosing a service provider that meets SLAs is vital.

Track Progress Make sure cloud computing receives the focused thinking, planning and follow-up it requires. Identify and address both immediate and longer-term business needs and opportunities that lend themselves to cloud computing.

Define Success Standards and Oversight for IT partners Make sure goals and deliverables are clearly understood, and projects are well aligned with business needs. Clarify how the value from cloud computing is to be determined.

Provide the Necessary Support Besides financial resources and technical talent, support to other activities will reinforce the success of cloud initiatives—for example, a group of personnel or a cloud program office develops cloud skills and share experiences.

Buy Cautiously, Appraise Frequently It is too early to predict who the major cloud providers will be in a few years, and what capabilities they will deliver, or how well. So, many factors need to be considered when choosing your CSP. Even after they are chosen, partners need to be evaluated on their

• Financial stability
• Ability to improve functionality and service levels
• Ability to integrate data across services

Clearing the Cloud and Helping Businesses Soar

Insurers are expected to enter the cloud computing arena cautiously, with no single cloud services delivery model being a silver bullet to best meet all their business needs. The key for insurers to succeed and gain a competitive edge is to develop a holistic cloud strategy that can be implemented across the core and non-core functions of the insurance value chain.

Our expert teams and infrastructure support insurers with customized, quick-to-deploy cloud computing solutions that help them:

• develop strong collaborative capabilities and better information sharing
• improve their bottom line by enhancing procedural efficiency
• reduce the total cost of ownership of IT infrastructure
• implement a cloud strategy based on risk consideration, level of standardization, and target total cost of acquisition at each core and noncore functions level

In the absence of a holistic cloud computing strategy, insurers will be challenged to achieve their business priorities of cost saving and enhanced business agility without compromising customer data and security. P&C insurers should develop their cloud strategy based on risk consideration, level of standardization, and target total cost of acquisition at each core and non-core functions level.