Simply put, cloud computing is the use of remote, virtualized computing resources (that are owned by the services provider) in order to retrieve, on demand, the data, computing cycles, network, storage, or applications that are required by the organization.

Well, maybe that's not so simple. It is easier to distinguish the different approaches by answering questions such as: “Who owns the computing resources and where are they located?” If the insurer owns the servers, hard drives, and other resources, houses them on their site, and has hired a third party to run the systems, then the approach is called managed services.

In the same scenario, if the resources are located at a remote site and run by the third party, then it is called hosted services. “Outsourcing” is the overarching term that applies when any third party is hired to handle any task that the insurer would normally do on their own. So, both managed services and hosted services are forms of outsourcing.

What about Software-as-a-Service? This approach sits somewhere between managed/hosted services and cloud computing. In the SaaS model, the computing resources are not owned by the insurer—rather, the insurer pays for the services that are delivered by another firm. The resources are remote, allowing the insurer to reduce its IT infrastructure, and the users get the flexibility to consume (and pay for) the services they need when and as they need them.

SaaS applications can be deployed to many different companies—a one-to-many model. They are not typically customized for one company, as in the prior ASP model. If this sounds like cloud computing, it is very close, but not necessarily the same.

Pure cloud computing takes the concepts of virtualization to the extreme. Rather than servers, data, and/or other resources sitting in a defined location, the combined resources from many locations may be harnessed to optimize performance and resource utilization. In addition, cloud computing can be applied to any type of resource—not just software.

Need some data storage space? Just make a request to the cloud and you will be allotted the proper amount, which may be physically located in New York or New Delhi. More network bandwidth required to handle phone calls after a CAT? Just reach out to the cloud and dial up your capacity. Looking for real-time weather data to assess the risks of an approaching hurricane? Reach out to your friendly data provider to request risk data in the cloud. All of these capabilities and many more are here today or coming soon to a cloud near you.

Now that we have covered the different options available, so what? Will these approaches—particularly cloud computing—really make a difference for insurers? The answer here is yes, but the impact will begin in small measure and grow over time. One important thing to recognize is that these definitions and distinctions don't matter to most people, especially business executives.

The main question is whether the services offered by the IT supplier provide the specific business capabilities that are required and provide the flexibility to change volumes or types of services—at an appealing price point.

Whether this is, in fact, accomplished via a cloud model, SaaS, or another technical approach is of little concern to the insurer looking for business capabilities. Another important consideration is the privacy and security of data in the cloud, especially customer data. Today, many private cloud implementations are underway to address these concerns, but public clouds will become more widely used in the future as these remaining issues are tackled.

Ultimately, many services will be delivered via the cloud: data, networking, computing power, storage, and applications. Google, Amazon, IBM, HP, Salesforce, and many others have already made significant investments and offer a range of services via the cloud.

Individuals are taking advantage of cloud-based services to store pictures, share documents, manage their music library, and more. Businesses, including insurers, are building on their experience with outsourcing and earlier delivery models to leverage cloud computing. Insurers are starting with common, generic functions such as document and content management.

While insurers remain wary of releasing customer information and mission-critical systems to cloud services providers, SMA expects that more and more vertical applications and data will migrate to the cloud as security and privacy management continue to strengthen.

Cloud computing is a trend that cannot be ignored. As with many new technologies, insurers are taking a measured approach, slowly ramping up as the technology becomes more mature and secure. So the next time someone asks you if you've got your head in the clouds, your new response might be, “No, but my data, applications, and computers are all there.”