How Insurance is Riding the Cloud for Rapid New Growth

eWEEK DATA POINTS: A recent industry report stated that 63 percent of insurers are looking to expand the migration of their applications to the cloud in 2019. This might be shocking for a 300-year-old industry that is often held hostage by antiquated internal processes.

During the past decade, the once stodgy, tech-averse insurance industry has evolved to become tech-savvy. The modern insurance community has embraced robust solutions that improve operational efficiencies, leverage analytics in more actionable ways and build intuitive front-end systems. One primary result of this has been an improved customer experience that meets the heightened expectations of policy buyers.

There are many areas of technology adoption in the industry. However, one major initiative that continues to skyrocket is the migration to cloud-based solutions. According to Novarica’s latest “Insurer IT Budgets and Projects” report, 63 percent of insurers are looking to expand the migration of their applications to the cloud in 2019. This might be shocking for a 300-year-old industry that is often held hostage by antiquated internal processes. However, with carriers often encumbered by legacy systems that are no longer sustainable or efficient, there isn’t much choice left for those wishing to compete in the modern customer landscape.

This eWEEK Data Points article examines the industry’s collective motivation behind its adoption of the cloud and discusses the top six reasons insurers are embracing it. Our expert resource is Jonathan Victor, Chief Information Officer of Insurity, who oversees all of the company’ SaaS implementations and manages the build, run and evolution of the company’s cloud platforms.

Data Point No. 1: Cloud Offers Insurers the Competitive 'Speed-to-Market' Edge

Insurance has historically been considered a laggard in technology innovation. For the better half of the decade, the competitive environment was defined by the carrier “haves” and “have-nots” of technology.  The early adopters of technologies like predictive analytics were more informed about risk assessment and able to make better decisions in assessing risk.

For insurers, there are typically two ways to drive revenue and profit: premiums paid on policies and investment of those funds.  Prior to 2008, insurers were able to rely on high-interest rates to maximize profit with conservative investment portfolios, but years of low rates have undermined that opportunity.  The primary way to improve profitability today is by writing solid, sustainable policies. The majority of the industry has now come to terms with the necessity of adopting technology to help them adapt to this new normal. It is now well accepted that future proofing for carriers is being determined through competitive advantage driven by speed-to-market, smarter underwriting decision making, and better customer experience--all functions greatly tethered to technology adoption. 

A core piece of the technology puzzle that enables all of this is a migration to the cloud. A cloud-based solution offers an insurer’s employees easy access to data and applications and facilitates more effective and efficient collaboration between stakeholders to increase productivity. In addition, insurers now have the opportunity to seamlessly integrate multiple business products within an organization and cater to their customers in a more connected environment.

Data Point No. 2: Cloud Eliminates Enormous IT backlog

Most industries invaded by startup technology culture can build IT infrastructure from scratch and layer new offerings on top. Insurers, on the other hand, have the significant challenge of replacing legacy systems and migrating historical policyholder data trapped within a multitude of platforms. Only once this is done can insurers reach a point where they can intuitively grow their business on top of a technology-based foundation. This reality has left carriers with a substantial IT backlog that will require a significant investment of resource, retraining and capital commitment to overcome.

Using the cloud accelerates this digital transformation. As a result, insurers are increasingly looking to replace their legacy systems with cloud platforms that bypass the need to address this costly IT backlog. Instead, carriers can focus solely on expanding their business and adapting to market needs at a quickened pace.

Data Point No. 3: Cloud Streamlines System Maintenance and Upgrades

Innovation in the insurance space is happening at such a rapid pace that the ability to make quick iterations of an insurer’s software is vital to success. With the cloud, insurers aren’t burdened with installing or maintaining hardware and software. Rather, they can focus on technology initiatives that generate business value. This also means that the hardware and software maintenance is generally being handled by a partner whose experts who understand the depth and breadth of the insurance industry and specialize in the cloud-based platform. Insurance continues to face a significant talent gap due to the shortage of candidates with a perfectly aligned skill set to bring these technologies in-house.

Insurance is a complex business. There are sophisticated core systems, such as policy decision support, claims, billing and customer communication, meeting head-on with risk selection and underwriting, actuarial sciences, compliance, security and investment strategies. There’s plenty of room for things to go wrong or become outdated if not maintained and upgraded properly.

Cloud adoption streamlines system maintenance by simplifying the process of refreshing predictive models and updating core system processes at a far quicker pace. This is particularly important to keep up with the latest regulations that vary state-by-state and guarantee a consistently efficient customer experience.

Data Point No. 4: Cloud Simplifies the Process of Organizing and Deciphering Data

Insurance companies are beginning to see a wealth of new third-party data entering the industry from IoT, sensors, drones and other areas. If the data can’t be processed and organized effectively within an insurer’s systems, then it loses most of its purpose and value to the organization. 

The importance of data may be obvious, but there is an additional reason for its value to insurers. This stems from an increased focus on real-time decision making, which demands usable insights integrated directly into the workflow.  Insurance companies face an uphill battle due to the sheer volume of data that is growing at a faster pace than can be analyzed economically and rapidly. Big-data investments in the insurance industry totaled more than $2.4 billion in 2018, according to a report from SNS Telecom & IT.  Moreover, there is a risk that expensive third-party data will not deliver the intended ROI. It can be difficult to determine what third-party data is required to establish the most optimized insurance product.

Cloud sits at the crossroads of in-house and third-party integration. A SaaS solution can provide the necessary third-party data sources and integrates it into the fabric of the system through the use of application program interfaces (APIs). For example, an insurer might be building a product that requires external data from CoreLogic, an aggregator of the latest real estate and property data. The SaaS provider will often curate the data from these third-party services and seamlessly integrate them within their core system for easy access and usage by end users.

In many ways, the cloud model effectively democratizes processes such as real-time analytics and levels the playing field for insurers.

Data Point No. 5: Business Scalability

Insurance is an increasingly demanding environment, with customers requiring innovative and flexible solutions that adapt to their diverse and dynamic needs. Traditionally, insurers haven’t had the dexterity to build new products quickly or the ability to use a test and learn approach that is so common in other technology-based industries. They have been forced to incur heavy upfront costs on IT infrastructure before delivering a product that may succeed or fail.

Cloud is all about scale. One of the biggest advantages of a cloud-based platform is the flexibility it offers insurers in scaling their business up and down as needed. Cloud eliminates the need for insurers to manage servers, switches and other IT infrastructure entirely, thus removing the CapEx burden for insurers to scale quickly and adapt their products. Minimizing resources in one area means allocating them elsewhere, such as in innovating and building new products.

Data Point No. 6: Security

The ability to secure a cloud environment is a top priority for insurance carriers today. That’s because appropriate security is either an enabler or a roadblock to technology innovation. This is exacerbated within insurance because of a stringent and constantly evolving regulatory environment.

A cloud environment offers insurers tremendous accessibility to leverage the SaaS providers information security expertise whose offering already meet the needs of state, federal, and where needed, global compliance requirements. This is especially beneficial for smaller businesses, who don’t have the necessary resources or time to study and implement new and extensive security and compliance protocols such as GDPR.

In addition, the insurer’s development and cloud operations teams are uniquely focused on collaborating and continually evolving their information security posture to circumvent potential security breaches.

Cloud is the future for insurance. It would be difficult to envision a competitive carrier without a cloud presence even a year or two from now. However, the migration to the cloud requires significant thought, planning, time and resources. Insurers should select a SaaS provider that both understands the intricacies of the commercial insurance space and has a mature Cloud Operations organization and enterprise-grade cloud infrastructure that makes it simple to configure their solutions without the need for external support.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 15 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...