Technological lags that compromise claims capabilities and, by extension catastrophe response, must be addressed now to avert disaster later. The first step is discerning between the hype and the reality of upgrading systems. Lingering aspirations to modernizing claims technology "one day" is not serving policyholders today. 

Swirling Contradictions
Admittedly some claims organizations have been talking upgrades for years but have yet to implement new solutions. Similarly, talk about advances in analytics related to social media, telematics and geo-location technology is at a fever pitch. However, Michael Costonis, managing director in Accenture's P&C insurance services, points out that 75 percent of survey respondents are still using offline data stored in Excel spreadsheets or Access databases. 

"Flexibility has been the byword of core systems modernization, but claims systems remain inflexible, requiring the intervention of IT," Costonis says. 

Prudent technology decision-making starts with a core system must be flexible enough to meet an insurance carrier's current needs while providing an environment suited for data analytics, Costonis says.  

"Predictive models are only as good as the data that feeds them, so a [carrier needs] a system that [will allow] core capabilities and data analysis to work hand-in-hand," he says.

Buying versus building a system is a separate discussion altogether. But what is clear is that the only way for insurers to survive and thrive is to employ systems that can be upgraded and configured, all while supporting the data environment. In that regard, Accenture shares some encouraging findings, one being that 48 percent of respondents have either already begun migrating their claims systems to the cloud or on a Software as a Service (SaaS) model; are planning to do so in the next two years; or are currently discussing the option. 

"The cloud" typically sparks discussion of reducing costs while enhancing overall efficiency. As talks progress beyond the macro level and insurers grow more comfortable with the cloud, they will in turn be able to realize more of the technology's potential beyond that of off-site storage and so on. In this journey, insurers will find valuable ways to employ the cloud in the claims process, just as they learned lessons in catastrophe preparedness and response from Sandy. 

Claims organizations will continue to seek cloud-based solutions to enhance their performance in the aftermath of hurricanes, tornadoes, fires, acts of terrorism and violence, and other disasters. Aside from meeting customer expectations, the ability to take swift, decisive action will not only mitigate further damage but also potentially save lives.

Behind the Numbers

Cost is one of many factors driving insurers' increased use of cloud at the platform, infrastructure, and software levels.

Michael P. Voelker is a contributing editor to PropertyCasualty360.com and Tech Decisions Magazine, a sister publication of Claims. This article also appears in Tech Decisions' Nov/Dec 2012 issue.

Smart businesses are always looking for ways to cut costs without impacting the service they provide to customers and stakeholders. Cloud computing offers a compelling cost-saving argument, particularly as the churn of technology has made traditional capital budgeting a challenge for IT organizations. 

"What you buy today [in IT] will be obsolete before you even have the capital expense depreciated," observes Michael Hugos, consultant and author of the book Business in the Cloud. "You need a flexible cost structure where you're not saddled with a massive infrastructure expense. Using cloud computing and Software as a Service (SaaS) are cost-effective, pay-as-you-go mechanisms for IT." 

"There's no advantage to me to have a data center and to pay for electricity, cooling, real estate, and other costs. It's more efficient to use a co-location site or cloud-based infrastructure options," says Waleed Sharaf, vice president of information technology at ICW Group Insurance Companies in San Diego. 

ICW Group uses cloud extensively throughout its operations. The company's FirstBest front office solution, providing online quoting and binding for workers' compensation, is run on cloud infrastructure at RackSpace. On the application level, ICW Group currently uses the SaaS-based UltiPro from Ultimate Software for HR and CounselLink from LexisNexis for legal matter management. The insurer also uses cloud-based services from ServiceNow for management of auto and commercial property claims as well as IT incident, problem, asset and change management. 

"Particularly because we are a mid-sized company, cloud works well for us. It is a quick, inexpensive way to get high value," Sharaf says. But while financial factors may lure insurers to the buffet of cloud-based platform, infrastructure, and software options, carriers stick with cloud for the business value it is proving to deliver.

"Expense reduction [with cloud] is important, but being able to have control of our abilities to migrate new products quicker, satisfy regulatory requirements faster, and provide a better overall level of service to our clients in an on-demand fashion are the critical business benefits that we see from cloud," says Dan Colarusso, senior vice president and chief information officer at Cypress Insurance Group in Jacksonville.  

"Clearly, we see the benefits of converting from fixed cost to variable cost environment, but for us, cloud is as much about the strategy of how we look at technology in IT," says Mark Berthiaume, senior vice president and CIO of commercial insurance at Chubb, which uses cloud on both the infrastructure and application levels. "We don't want to spend on things that are not core to the business, and we want to shift from building applications to assembling, configuring, and integrating them." 

Agility Defined 
Cloud is enabling agility by allowing insurers to consume services without building or buying a new business system, and that translates to speed to market. "With cloud, you don't have to spend nine months studying solutions and invest millions of dollars to deploy them. You can think big, but start small and deliver quickly. You can spend just a few weeks studying things, and roll out something that solves a specific problem in 30-, 60-, 90-day cycles," Hugos says. 

"I don' think we went out to the market saying 'we want cloud.' We wanted the best way to get something up quickly," says Berthiaume. 

Chubb leverages cloud-based fax services from Easylink to eliminate the need to maintain fax infrastructure. On the application side, Chubb uses salesforce.com for CRM and Imaginatik's Innovation Central to support the insurer's innovation program. The company is exploring a cloud-based print solution and is investigating ways to move policy administration components to cloud-based providers. 

"We were able to deploy the cloud-based innovation system in 90 days. We considered some in-house development of platforms, but it would have been a much longer timeframe," Berthiaume says. 

"Cloud is a way for us to move from platform to platform as the technology advances. Just unplug from one and move to another. It keeps us ahead of the curve," says David Hoppen, chief operating officer, ICW Group. 

In its cloud-based IT strategy, ICW Group made it a top priority to avoid vendor lock-in. "This has been a big problem for companies—creating a Gordian Knot of systems that you couldn't extract yourself from. Cloud gives us easier access to newer, extensible systems that are available via a portal and that are enriched by the experience of multiple users, in contrast to proprietary systems," Hoppen says. 

Size and Scale
In addition to enabling faster speed to market, cloud levels the playing field. "It [cloud] gives smaller companies the ability to look bigger by giving them access to technology on par with bigger players," says Bob Hirsch, director at Deloitte Consulting. 

Seeking a CRM solution but with limited time and IT resources, Alabama-headquartered Alfa Insurance turned to the cloud-based RightNow solution (since acquired by Oracle), deploying the platform in 2009. Alfa was able to go live within six months of initial research into a CRM platform. 

"It would have taken us at least 24 months in a traditional installation, and I am not sure if that would have even been enough time," says Susan Adcock, vice president of marketing resources. "We wouldn't have been able to commit to a new system at all if it wasn't a cloud-based system." 

A cloud deployment also keeps Alfa current with the latest platform upgrades. "It's nice to get technology improvements and enhanced features without having to purchase new equipment, software, or upgrades. No IT staff is required; the system administrator works with the RNT [Oracle] staff to set up a production test environment and, after testing is complete, we roll the upgrade into production," Adcock says.  

Insurers are also looking to cloud for scalability needs. Companies can manage business fluctuations and growth through a pay-as-you-go structure. 

"In terms of IT control and efficiency, we have affordable and predictable fixed-rate costs [with cloud]," says Colarusso. "I can say exactly what my costs will be and don't have to add additional hardware and software."

One area where Cypress uses cloud is office productivity via Microsoft Office 365. "It [Office 365] provides us with enterprise-grade security, reliability, and on-demand scalability and storage with no up-front infrastructure investments," Colarusso says. 

"We also seized on its built-in message archival and legal hold capabilities," he adds. "Being cloud-based, it provides redundant disaster recovery and automatic failover that we didn't have to build ourselves. We're guaranteed 99.7 percent uptime, and my network engineers have a single administration point that reduces our support time and costs." 

Cypress has been using CSC's outsourcing services for policy administration, billing, customer service, and commission processing to date, but is in the latter stages of bringing those functions in-house. Supporting those processes will be MajescoMastek's STG suite, provided to Cypress through a SaaS delivery model. 

"Being able to have control of our abilities to migrate new products quicker, satisfy regulatory requirements faster, and provide a better overall level of service to our clients in an on-demand situation" are the key benefits Cypress targets from the cloud model, Colarusso says.

Cypress isn't the only insurer looking to the cloud for core processing. ICW Group believes core in the cloud is a viable model and is testing CodeObjects' subscription-based InsuranceEnterprise platform. 

"Data integration and analytics are the only two areas we could see needing to stay in-house, although even there we could be dealing with servers and data storage in the cloud," Sharaf says. 

Yet many carriers remain cautious of moving core in the cloud. "We're seeing a lot more adoption of cloud in the front office. The back office is being handled by more traditional solutions," observes Hirsch.  

"There is definitely interest of carriers wanting to do their core transaction processing within the cloud, although no doubt there's more talk than use, particularly when we get into the 'secret sauce' of how carriers differentiate themselves by underwriting their products or handling customers and claims," says Mike Jackowski, global managing director of P&C Software, Accenture.  

Chubb is among the carriers who believe that cloud-based core insurance systems are not ready for prime time. "The [core] vendors out there are not as established. They're still in the process of building capability and scale," says Berthiaume. "I'm convinced we'll see policy admin in the cloud, but it's an area that needs to mature before we'll consider it." 

Jackowski says that the configurability of modern admin systems to reflect a carrier's unique business processes has gone hand in hand with the growth of interest in cloud-based delivery. "In the past, a lot of the product rules were instantiated inside the systems themselves, and as a result they weren't very configurable over the cloud. The day that cloud-based products become configurable in the cloud is the day they become more popular, and that is happening, with rule definitions sitting outside the core software," explains Jackowski. 

He believes that while companies of all sizes will eventually look at the cloud for core processing, only small and mid-sized carriers will trust the cloud to provide their entire suite of core functionality. "With large carriers, you will see them taking only part of a core solution to the cloud. For instance, they may be willing to do first notice of loss processing in the cloud, but not the entire claim process," says Jackowski. 

Collaboration and Alignment
In an increasingly social business environment, web-based cloud platforms are enabling easier collaboration. "Because we have a large number of remote users, it was important to allow anywhere access and collaboration. With the three pieces of the Microsoft solution—Office 365, SharePoint, and Lync Online services, we have real-time file sharing and editing," says Colarusso.  

Alfa provides an agent portal to the RightNow system for its employed and independent exclusive sales agents. "The portal allows our field agents to access leads, view services we've provided to their customers, and see notification of claims that were filed. It also allows us to deploy our knowledge-bases information to the field agents and to capture VOC [voice of the customer] information from the agents," which includes compliments, concerns, and suggestions, Adcock says.

Collaboration is central to Chubb's innovation platform. "It's an environment where people can comment on, rate, and score ideas," Berthiaume says.

Headed by a chief innovation officer, Chubb's innovation program features regular events that focus on specific targets, such as cost reduction or operational efficiency. The Imaginatik platform provides cloud-based collaborative spaces that help teams collect, build, and share ideas, and analytics that let Chubb evaluate the effectiveness of ideas that the program generates. 

"When a program is over, the platform has a variety of ways to score the results and to slice and dice the information. It's the guts of our innovation process," Berthiaume says. 

Chubb has also seen improved alignment between business and IT as a result of cloud-based technology deployment. "Besides greater flexibility, faster speed to market, and increased innovation, one thing that gets overlooked is how close [cloud] puts business and IT folks together," says Berthiaume. 

"With traditional platform implementation, the business side does business requirements, and IT designs and codes. If you're not following an agile methodology that pushes small increments of code out in an iterative way, IT can go off, design and build systems and rarely talk to business," he elaborates. "In configurable cloud environments, you don't have long periods when IT and business are not as close. Development happens quickly, and business is often directly responsible for doing a good part of the configuration of cloud-based systems." 

Cloud Cautions
The top concerns insurers cite about cloud typically deal with the technical issues of security. Hugos dismisses those worries. 

"The security issues are not the important ones," he claims. "People go on and on about security and I appreciate the need to be secure, but those issues have essentially been solved as well as anyone can. This is not experimental technology anymore—every major vendor has invested millions of dollars in creating cloud services, and their reputations depend on those services being secure." 

"In some cases it's better [security with cloud] than with their internal systems," Hirsch observes. "In fact, where insurers feel comfortable putting data into the cloud, they tend to have a better understanding of data security because they make a point to audit the vendor."

Hugos says the biggest challenge for insurers presented by cloud is the cultural change it can bring to the IT organization. 

"It's provoking a major cultural backlash because for the last 30 years, 70 percent of your IT operations were in-house administration and staff dealing with maintenance. When you can in effect outsource your data center operations [with cloud], that staff needs to be repurposed," he says. "Job security issues are big concerns." 

IT may also see the technical part of its role shift from systems development to integration. "Although at times my team can get frustrated because they want to do the cool, 'sexy' work using the latest development technology, our strategy is to buy, not build applications," Sharaf says. "We build our integration layer and we build our analytic layer—those are the only two areas where the work has to be ours, using our own people." 

Additionally, the affordability of cloud can also create its own problems for IT. "The cost of entry is so low that cloud often becomes "shadow IT" across the organization, and it's hard to manage as a result," Hirsch observes. "That's something IT really needs to get in front of." 

"We realized early on that cloud solutions could really be implemented without IT, so we put management controls around it—not to strangle the process, but to ensure consistency and avoid Sarbanes Oxley, privacy, and other issues," Berthiaume says. Those controls include rules for provisioning and de-provisioning users of cloud systems, implementing new features and functionality, and governing environments and data. 

"Even though you're not running the systems in the company, you want to have governance oversight so that the environments don't replicate into too many diverse and different environments," he says. 

Capitalizing on Cloud
Jackowski says that although insurers have been slower than some other industries in the adoption of cloud, they are well positioned to capitalize on it. 

"It's not new for carriers to outsource key capabilities or functions. For decades they've been outsourcing estimating packages, medical bill processing, damage appraisal and subrogation, call center capabilities, and so on. That outsourcing mentality is the basis of cloud adoption," he says. 

"IT has a lot to gain by partnering with the business and provisioning cloud-based applications to support new business capabilities, which will make the IT organization more flexible and valuable," Hugos says. "[Cloud] is going to happen, and those who get out in front are going to look like heroes."