The Pandemic is Pushing Insurers to the Cloud

The Pandemic is Pushing Insurers to the Cloud

Insurance is lagging behind many other industries when it comes to cloud adoption. As a consulting firm with a long history in insurance, we have seen this first-hand.

Over the past decade, cloud has become a major focus across most industries. Research firms expected public cloud services to continue growing in 2020, despite a predicted decline in worldwide IT spending.

At the beginning of the decade, insurers were reluctant to use cloud technologies because of concerns about network and data security. Since then, the cloud industry has matured significantly, and cloud services have been complemented by a wide range of cloud-native technologies that improve resilience and security.

Cloud adoption rates and industry statistics show that governance and compliance are becoming less intimidating even for highly regulated sectors. In Europe, between 2018 and 2019, insurance CIOs increasingly considered significant expansion across IaaS, PaaS and SaaS models (Source: Celent).

As cloud providers and services have become mainstream, insurers can increasingly look beyond these concerns and start leveraging the power and flexibility of cloud services.

With the onset of COVID-19, priorities in IT spending changed drastically. Hiring and investment freezes became commonplace, and insurers became more selective and cautious about new initiatives. Despite widespread spending restrictions, more insurers began looking at moving their IT infrastructure to the cloud.

Short-term reactions

To realign business strategies, approximately half of P&C insurers took short-term actions focused on high-priority systems investments and accelerating digital and virtual capabilities (Source: Celent).

Lockdowns and social distancing measures highlighted the importance of online capabilities and remote interactions in both internal and external business processes.

Long-term focus

In a Celent survey, P&C insurers were asked about their post-pandemic IT initiatives. Three significant long-term strategic priorities emerged:

• Increase the percentage of employees working from home (76% of respondents).
• Accelerate the digital transformation programme (53% of respondents).
• Develop a cost-containment strategy (47% of respondents).

Various cloud services can support these priorities, which is one reason cloud usage is becoming increasingly important in the insurance industry.

The cloud can take many forms, depending on the business need.

The cloud is a bridge for remote capability

Traditionally, virtual desktop environments required on-premises servers and older Virtual Desktop Infrastructure (VDI). Maintaining and operating these servers required significant time and effort. Performance was limited by the capacity of internal infrastructure, and sudden increases in traffic could overload systems and severely affect end users.

Resource allocation was often inefficient and required ad hoc configuration changes as well as constant manual monitoring.

With cloud-based virtual desktop infrastructure, businesses can benefit from the flexibility, scalability and security of cloud technology.

The remotely accessible and centralised nature of cloud VDI can significantly reduce costs. In an extensive study comparing on-premises and public cloud VDI, business value gains were predicted in cost savings, staff productivity and user enablement, totalling USD 2,015 per year per user (Source: IDC).

Support staff can respond to incidents remotely from any location, without the need to travel. Software and operating system updates and patches can be applied centrally, without having to manage each device individually.

Access to resources can also be automated based on user credentials and roles, whether the users are developers, agents or reinsurers.

The performance capacity of cloud infrastructure is highly scalable. As work-from-home initiatives increase and workloads fluctuate, cloud infrastructure can adapt to changing resource requirements and right-size the allocation of resources, including software licences.

Many of these activities can rely on automation and scripting, reducing the need for constant intervention from support teams.

Cyberattacks and device theft can also be mitigated more effectively. Physical data is not stored on the device, and access gateways to the central cloud can be protected through cloud infrastructure best practices and cloud-native security services.

Modern disaster recovery approaches can respond effectively to technical issues without the same risk of data loss. Compliance and governance are becoming less of a barrier to cloud adoption.

The cloud is a tool for cost control

When properly configured and managed, cloud infrastructure provides tools to measure and control rising IT costs. Many companies move operations to the cloud for this reason alone.

To understand the cost benefits and ROI of a cloud migration, it is important to have a clear understanding of the existing architecture and IT costs. A broad and detailed view of the organisation is a logical starting point.

Services are often intertwined with multiple integrations and shared resources, making it difficult to assess infrastructure costs in detail. Even mature organisations can struggle to track and break down all IT costs.

CIOs and IT departments often lack the tools needed to monitor them properly. Without the ability to analyse costs in detail, it is difficult to optimise and manage them effectively.

These issues became even more visible as COVID-19 increased remote work and internal IT resource demands.

Ignoring this problem can slow progress towards digital transformation. At the same time, it can be difficult or even impossible to accurately calculate the cost benefits of moving to the cloud.

Before a cloud transformation begins, decision-makers may need to work with higher-level cost estimates and treat the transition to cloud as an opportunity to improve cost visibility and tracking through tools such as Total Cost of Ownership (TCO) calculators and other administrative functionalities.

The cloud is a platform for digital transformation

The culture of digitalisation can grow rapidly when the right infrastructure is in place.

Cloud marketplaces provide access to many of the latest technologies in machine learning, AI and analytics. Young InsurTech companies also increasingly provide cloud-ready or cloud-native services that can be integrated with existing cloud environments.

Many insurers have already started cloud transformations in peripheral functions such as CRM, ERP, human resources and customer-facing portals. In this way, cloud has become a gateway to new technologies.

We have observed that insurers often adopt cloud technologies gradually. Some build their own private cloud environments, while others create hybrid environments combining public and private cloud.

These can be safe and effective ways to begin a migration. Property & Casualty insurers are more likely to use hybrid environments while keeping central functions in-house, often because of compliance and security concerns.

Although this represents significant progress, it is also important to assess the potential benefits of a broader cloud transformation involving more critical workloads and data.

Security, compliance and governance can be successfully managed in cloud environments and, in some cases, improved. Regardless of where an insurer is on its cloud transformation journey, a detailed analysis can help identify both the tangible and intangible benefits of cloud migration.

The cloud is becoming a market standard

The US failed to fully adopt the metric system. In 1999, NASA lost a spacecraft because of a conversion error, resulting in losses of USD 125 million. If the transition had taken place earlier, the overall cost and effort might have been lower and the change simpler. Despite these challenges, NASA fully transitioned to the metric system in 2007.

Similarly, as IT systems become more complex and accumulate more data, cloud transformation becomes increasingly expensive and difficult. The effort required for the transition continues to grow.

But it is not too late to start.

At Sollers, we can help assess and manage the move to the cloud. We can support institutions in gathering new insights and identifying possible transformation paths. We have worked with major European insurers, supporting cloud migrations and containerised deployment platforms for core systems and customer-facing interfaces.

Our assessment of cloud business cases and architecture can help guide organisations through the transition to the next generation of technology.

Author: Shinnosuke Fuchigami, Senior Analyst at Sollers Consulting

Shinnosuke is an experienced professional who has consulted for major vendors and has project experience with insurance clients as a QA Lead and Release Manager. At Sollers Consulting K.K., Shinnosuke is responsible for the internal development of cloud topics.