What Insurers Need to Know to Develop a Cloud Computing Strategy
August 1, 2010
Cloud computing has gained a lot of awareness lately. In fact, cloud computing was ranked as the top technology priority by a sample of 76 insurance CIOs who participated in Gartner’s annual CIO survey.
Gartner defines cloud computing as a style of computing in which scalable and elastic IT-enabled capabilities are delivered as a service using Internet technologies to multiple customers. "Scalable and elastic" means that the cloud services scale on demand to add or remove resources as needed. The service — including software and data — resides on hardware that the customer doesn’t own.
Cloud computing can be delivered via private or public clouds; the definition of these two models is essentially the same, except for the fact that private clouds are delivered to internal customers only. Private clouds are exclusive to approved members, and approval is contingent on defined membership boundaries. Gartner estimates the current market for cloud services to be approximately $46.4 billion and has forecast the market to reach $150.1 billion by 2013 based on a compound annual growth rate of 26.5 percent.
Still, the adoption of cloud computing remains very low in the insurance industry, especially when it comes to core insurance applications such as policy administration or claims management. For example, only 10 percent of carriers use software-as-a-service (one of the better known cloud computing categories) for billing applications.
Most insurance organizations don’t have a distinctive cloud-computing strategy in place and use the concept rather opportunistically. But cloud computing provides a number of potential benefits to insurers, including better economies of scale, more-flexible sourcing options, and more efficient use of financial and human resources.
Batten Down the Hatches
One of the common myths about cloud computing is that it’s easy and that you don’t have to invest any work to move infrastructure applications or business processes into the cloud. But the opposite is the case — there are a number of preparations needed for cloud computing, including:
- Simplify and consolidate the IT infrastructure. Get rid of parallel application stacks, manual or semi-automated interfaces, and monolithic legacy applications.
- Standardize your technology infrastructure by using non-proprietary messaging standards (such as ACORD), enabling consistent semantic synchronization between different applications and avoiding cumbersome customization or code enhancements.
- Define a holistic IT domain model based on a service-oriented architecture (SOA) with encapsulated, sufficiently granular and well-documented web services that are independent from the underlying implementation technology to support better integration capabilities.
- Harmonize and reengineer the business processes across the organization to establish consistent best practices — for example, in managing quotations or risk across different business units and affiliates.
Without these prerequisites, insurers would face significant risks in launching a cloud computing initiative. Cloud computing without a mature, cloud-ready IT landscape simply will not work.