While the evolution of existing technologies has led to increased demand for cloud services, there is often confusion about what exactly this approach entails and what firms need to consider.
Despite this lack of clarity, Forrester Research, one of the most influential technology research and advisory firms globally, expects the global cloud market to reach $113.9 billion in 2016, with further growth to $241 billion in 2020, as companies look to benefit from increased efficiency and agility, while focusing on their core business rather than their IT operations.
Rhys Collins, Head of African Operations for SSP says “the commoditisation of products and the emergence of new channels to market plus the drive for cost efficiencies means that cloud computing is particularly pertinent to the insurance industry”. “Furthermore,” says Collins, “ with IBM research showing that only 16% of insurers felt they lacked the relevant skills, and cloud computing expected to account for 25% of the average insurer IT budget this year, insurers would seem well-placed to make the most of the benefits available.”
Yet a further report by Novarica, a well-known global IT Consultancy, demonstrated that while over half of insurers use software-as-a-service (SaaS) in some ancillary applications, only 20% of general insurers have active or planned pilots for core applications via SaaS. In addition, IBM noted that almost three times more insurers than the cross-industry average (11% compared to 4%) have no plans to adopt cloud computing in the foreseeable future.
Collins says “given the advantages that can be obtained in terms of managing budgets and resources, it would be valuable for these insurers to re-evaluate their approach”.
“One of the significant benefits of cloud computing is the confidence it provides around IT costs. By renting a virtual server rather than investing in network equipment, insurers can exchange set capital expenditure for operating costs that adapt to meet their requirements. Moreover, packaging up the infrastructure, electricity and disaster recovery with the actual virtual server provides firms with further certainty over their forthcoming outlay.”
As demand for services increases or decreases, the cloud system responds to these changes, ensuring that insurers have the right size provision available and pay no more in IT costs than is strictly necessary. In addition to the economic benefits this flexibility provides, there is the advantage of operational responsiveness to the opportunities and challenges insurers face.
“Of course, all of this requires a change in business attitude to accept the technology and models behind cloud computing. One aspect of this is the need for insurers to have policies in place to adopt cloud-based services in a joined up way to reduce costs through economies of scale,” says Collins.
Insurers also need to manage where their data is stored and ensure they are comfortable with the regional regulations that govern this. It is also not just the physical location that needs to be considered, as regulations often extend beyond national boundaries.
So where is the insurance industry currently in terms of adopting cloud technology? While it is still at the relatively early stages, SSP is already seeing the use of cloud infrastructure as a test environment, and it is only going to be a short period of time before those further core capabilities beyond just policy administration are being adopted through an as-a-service model.
Insurers are also starting to look at using cloud computing for production services and data, and this trend is set to continue as more propositions come to market, in particular the use of big data and management/business intelligence as services.
“Insurers need to be ready to accept the way technology is moving and have policies in place to adopt these services as they come along. This strategy is no different than the outsourcing trends of the past – it’s just that the technology has evolved and the legal aspects are more mature,” concludes Collins.