Other parts of this series:
Spotlight on cloud options for insurers and how they can benefit your business
In my first post, I demonstrated how the conversation around cloud has shifted away from “if” insurers should move to cloud, to “when” and—critically—“how”. In this post, I’ll discuss the different types of cloud operating models that are available and the pros and cons of each.
One thing is certain: if you haven’t already done so, the time to move your business operations to cloud is now. Research by the Industrial Development Corporation (IDC) has found that by 2020, 90 percent of enterprises will use multiple cloud services and platforms.
There are three main types of cloud: public, private, and a hybrid of the two. In financial services we’ve also seen a surge in the popularity of community cloud. When choosing the best model for your business, it’s important to think about and understand your business and IT priorities, your enterprise objectives, and how you wish to position your organization to operate in the future digital insurance ecosystem.
Here’s a brief description of public, private, and hybrid cloud:
What is public cloud?
Public cloud gives insurers access to massive data centers that are located across the world and can scale up and down, making it highly cost-efficient.
But insurers are concerned about data privacy issues which arise when you bring data into countries which you might prefer to avoid. You then have to ask: what are the risks of moving into this environment?
There are two schools of thought on data security. Many believe that linking into public infrastructure exposes you to risk. However, companies like Azure and AWS deal with a massive amount of data and are therefore committed to protecting themselves and their clients against public attack. They are constantly doing more research and innovating to anticipate and solve potential data security problems.
What is private cloud?
A private cloud belongs to a single organization, to which the hardware is dedicated. Private data centers can be hosted onsite or offsite, and your data is protected behind a firewall. Some companies, for example IBM, reserve parts of their data centers which you can buy.
A private cloud eliminates the sharing of infrastructure, so your data feels more secure. However, unlike with public cloud, you have to manage, maintain and update your data centers yourself.
Insurers mostly prefer to use private cloud for vertical applications like policy administration systems, underwriting and commissions management domains. Large insurance companies that have already invested significantly in their own IT capabilities prefer to build private clouds.
Enter the hybrid cloud
A hybrid cloud is a combination of public and private cloud solutions. It is one of the key cloud trends in insurance, owing to its ability to accelerate application delivery and to facilitate compliance with data regulations.
Hybrid cloud solutions source services from private and public cloud to leverage the strengths of both, saving insurers on cost and space. For example, you could store confidential information on a private cloud, while doing routine tasks on public cloud.
A hybrid cloud environment taps into the advantages of a secure private and a versatile public cloud. It allows enterprises to develop a cloud-first mindset and to innovate continuously while taking advantage of mobility, social, big data and analytics.
Hybrid cloud is preferred for product design and configuration, governance, and strategy and planning aspects. P&C insurers prefer a hybrid cloud for core functions like design and front-office applications, as well as broker and agent portals.
Creating a unique cloud journey
Insurers that opt to build their own cloud can look to CynoSure for inspiration. The Dutch software-as-a-service provider was set up in 2015 as a spinoff of InShared (a digital insurance brand formed by Achmea) and is a great example of an insurer that set up its own “greenfield” operations to develop a cloud-based core insurance app.
Trust in the community
A fourth option is a community cloud that has been set up by insurance associations to form an environment where community members and third parties can collaborate. The Trusted German Insurance Cloud, for example, was formed by the German Insurance Association to help members promote market standards for data exchange, contribute to higher straight-through-processing rates, and reduce integration costs for redundant point-to-point connections.
How do you choose a cloud service provider?
In its Magic Quadrant for Public Cloud Infrastructure Managed Service Providers, Worldwide 2018, Gartner identifies three leaders—Amazon Web Services (AWS), Microsoft and Google—and three niche players—Alibaba Cloud, Oracle and IBM—that excel in providing cloud services.
To choose the best solution and partner for your business, you will first have to determine which parts of your business (if not all) you want to move to cloud; which will go first; and how you’ll accelerate it.
In my next post, I’ll look at case studies of financial services organizations’ unique journeys to cloud.