With the main benefits of Cloud computing now well-established, EXPOSURE explored why insurance and reinsurance companies have demonstrated some reluctance in moving core services onto a Cloud-based infrastructure.
While a growing number of insurance and reinsurance companies are using Cloud services (such as those offered by Amazon Web Services, Microsoft Azure and Google Cloud) for nonessential office and support functions, most have been reluctant to consider Cloud for their mission-critical infrastructure. Simply moving a legacy offering and placing it on a new Cloud platform offers a potentially better user interface, but it’s not really transforming the process.
EXPOSURE also asked whether now is the time for market-leading (re)insurers to make that leap and really transform how they do business, embrace the new and different, and take comfort in what other industries have been able to do.
With a lot of Cloud providers now making it very easy to deliver analytics on the Cloud, there is both the story of agility, scalability, predictability, compliance and security on the Cloud, plus access to new analytics, new algorithms, and use of microservices when it comes to delivering predictive analytics.
This ease to tap into highly advanced analytics and new applications, unburdened from legacy systems, makes the Cloud highly attractive. Hussein Hassanali, managing partner at VTX Partners, a division of Volante Global, commented: “Cloud can also enhance long-term pricing adequacy and profitability driven by improved data capture, historical data analytics and automated links to third-party market information. Further, the “plug-and-play” aspect allows you to continuously innovate by connecting to best-in-class third-party applications.”
While moving from a server-based platform to the Cloud can bring numerous advantages, there is a perceived unwillingness to put high-value data into the environment, with concerns over security and the regulatory implications that brings.
This includes data protection rules governing whether or not data can be moved across borders. “There are some interesting dichotomies in terms of attitude and reality,” says Craig Beattie, analyst at Celent Consulting. “Cloud-hosting providers in western Europe and North America are more likely to have better security than (re)insurers do in their internal data centers, but the board will often not support a move to put that sort of data outside of the company’s infrastructure.
“Today, most CIOs and executive boards have moved beyond the knee-jerk fears over security, and the challenges have become more practical,” he continues. “They will ask, ‘What can we put in the Cloud? What does it cost to move the data around and what does it cost to get the data back? What if it fails? What does that backup look like?’”
With a hybrid Cloud solution, insurers wanting the ability to tap into the scalability and cost efficiencies of a software-as-a-service (SaaS) model, but unwilling to relinquish their data sovereignty, dedicated resources can be developed in which to place customer data alongside the Cloud infrastructure. But while a private or hybrid solution was touted as a good compromise for insurers nervous about data security, these are also more costly options. The challenge is whether the end solution can match the big Cloud providers with global footprints that have compliance and data sovereignty issues already covered for their customers.
“We hear a lot of things about the Internet being cheap – but if you partially adopt the Internet and you’ve got significant chunks of data, it gets very costly to shift those back and forth,” says Beattie.
A Cloud-first Approach
Not moving to the Cloud is no longer a viable option long term, particularly as competitors make the transition, and competition and disruption change the industry beyond recognition. Given the increasing cost and complexity involved in updating and linking legacy systems and expanding infrastructure to encompass new technology solutions, Cloud is the obvious choice for investment, thinks Beattie.
“If you’ve already built your on-premise infrastructure based on classic CPU-based processing, you’ve tied yourself in and you’re committed to whatever payback period you were expecting,” he says. “But predictive analytics and the infrastructure involved is moving too quickly to make that capital investment. So why would an insurer do that? In many ways it just makes sense that insurers would move these services into the Cloud.
“State-of-the-art for machine learning processing 10 years ago was grids of generic CPUs,” he adds. “Five years ago, this was moving to GPU-based neural network analyses, and now we’ve got ‘AI chips’ coming to market. In an environment like that, the only option is to rent the infrastructure as it’s needed, lest we invest in something that becomes legacy in less time than it takes to install.”
Taking advantage of the power and scale of Cloud computing also advances the march toward real-time, big data analytics. Ricky Mahar, managing partner at VTX Partners, a division of Volante Global, added: “Cloud computing makes companies more agile and scalable, providing flexible resources for both power and space. It offers an environment critical to the ability of companies to fully utilize the data available and capitalize on real-time analytics. Running complex analytics using large data sets enhances both internal decision-making and profitability.”