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What’s Clouding The Cloud For The Insurance Sector?

Posted on Wednesday, Jan 12th 2011

By guest author Simon Walker of Blue Cod Technologies

The technology world loves its buzzwords. Attaching a catchy term can help grab attention and define a broad technical evolution in a simple way. It can also overcomplicate a new process or technology, put its evolution at risk, and drive buyers to focus on the mechanics versus the value. When buyers sense complexity and focus on the technical minutiae instead of the business value, the perceived risk increases and the barriers to real business adoption go up.

This is especially true in an industry like insurance, whose lifeblood is calculating and mitigating risk. Incorporating any new process or technology into an existing business infrastructure presents some level of risk. This, when coupled with a poorly defined offering, may cause many to walk away from an opportunity that could dramatically improve their business. In many ways, cloud computing, for non-infrastructure uses, is past that point.

The issue of disparate distribution channels, disparate and sometimes unconnected operating entities across product types and lines, has long been a drag on insurance carrier operations. Web distribution and mobile networks have driven tremendous value in the insurance industry and have been readily adopted. The combination of SaaS and the cloud hold fundamental value in the insurance industry as well, yet adoption is relatively low.

Clearly, communicating the business case for cloud computing is critical to adoption in the insurance sector. The benefits must outweigh the risk for a carrier to consider implementing a new infrastructure model like cloud computing.

So, what is the value of the cloud to the insurance industry? Having a combination of a private or public cloud plus a SaaS delivery model enables carriers to coordinate disparate channels such as distribution, claims, and marketing. The cloud tightens connections and improves workflows by granting people and departments across the company 24×7 access to the most current data, files, and other business-pertinent information and communication tools.

Additionally, as carriers move more toward smart phones and other intelligent mobile devices, they need to access different information feeds. By being able to connect to current satellite data, risk factors as well as client file history, the claims representative in the field can better assess the property being evaluated. Working within a cloud framework also allows the field representative to coordinate in real-time with the home office. As a result, the agent is able to more efficiently, effectively, and accurately assess the property from the road.

Another key factor to encourage adoption of cloud computing in the insurance industry is to understand the specific needs of the carrier based on their market size.

For the start-up carrier, cloud computing is an attractive alternative. In many cases, these early-stage carriers have yet to invest in capital expenses outside of their mobile devices. They are not tied to overhead costs such as office space and can operate functionally on the road. Tapping into the resources available from an extensive insurance network infrastructure for a service charge is a logical, practical, and beneficial business decision. The cloud model easily accommodates a start-up’s business model.

On the other end of the spectrum, large carriers can also reap significant benefits from a cloud model. Unlike the start-up, large carriers have an established and extensive infrastructure of people and resources. They can have upwards of thousands of non-captive agents who could benefit greatly from having business intelligence (BI) delivered through a cloud on a SaaS model. By spinning off targeted segments of their business into the cloud, these large carriers could make employees more efficient while minimizing overhead such as procuring and managing office space.

Although the upfront migration costs could be considerable, large carriers have the money, the resources, and the business need to justify the move. Ultimately, the cost savings gained by delivering segments of their business through the cloud will outweigh the initial migration costs.

The mid-market carrier presents the greatest barrier for cloud adoption. Typically, these organizations are not big enough to spin off a specific business function or need, and sending the entire operation to a modern cloud-based model would be prohibitive. It would require a complete overhaul of their business and would therefore be perceived as too high risk and costly to consider. While the upfront investment and associated risks may dissuade mid-market carriers from moving forward initially, they may find the long-term benefits favorable enough to not give up on the cloud completely.

Operating in the cloud would enable the mid-market carrier to better compete with enterprise-scale organizations because they could access the same level of intelligent data as well as base their business on a state-of-the art infrastructure. The cloud could also allow them to better compete with the start-up carrier by giving them the same flexibility and speed. Basically, the cloud model can give the mid-market the agility of a startup with the strength and structure of an enterprise player. It’s a high-risk move with a lot of return.

There is no doubt that the cloud can deliver value to the insurance sector, so why is adoption so slow? Certainly there are fantastic emerging offerings in the insurance space and traditional players that are migrating to SaaS and cloud-based offerings. However, the vast majority of technology consumed in the insurance market leans toward more traditional stock. With industry influencers focusing so much on the emergence of cloud computing and SaaS over the past five years, it is difficult to understand why the insurance market is still hesitant to adopt.

For one, there is a large graveyard of vendors that have attempted to sell best-in-breed solutions from other sectors into the insurance vertical. Carriers have not been kind to those who claim insurance specialty because they “sell in FS.” But, there is definitely more going on here. Adoption is slow because of the market’s overwhelming focus on the technology of the solution.

In the past 10 years, business and operating leaders have become far more involved in technology buying. They are driving much of the process and in some cases refocusing their IT groups into architecture, support, and procurement organizations. These buyers are interested in the functional purchase. The vendor community has yet to truly capture their imaginations with a cloud-based model that speaks to the functional needs in insurance. SaaS penetration is growing in insurance but is still incredibly low.

At Blue Cod Technologies, we’ve had success in creating services that can benefit carriers at the startup, mid-market, and enterprise levels. The reason for our success is that we have taken the time to understand the business needs specific to each market level. When exploring blue-sky opportunities in the insurance industry, understanding the different concerns and demands of varying market sizes is critical to the success of the new technology or service one may be looking to launch. Understanding that the insurance industry is not a laggard adopter, but instead a conservative and thoughtful one, will help greatly when developing the business case for a new technology or service. This is not an industry of professionals who want technology for technology’s sake – they will buy what will help drive their business forward.

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Great article. Cloud concept is definitely the focus of all big players of the industry, therefore worth wide considering it on any IT business platform.

Harr y Koka Thursday, January 20, 2011 at 10:19 PM PT

Concerning the public cloud: Has any national carrier determined through a comprehensive study that expenses will be lower and operations more efficient by moving from a capital investment to an operational expense long term strategy? Since when is it cheaper to rent than to buy?

Robert Rojas Wednesday, February 9, 2011 at 9:13 AM PT