P&C insurers look to the cloud for key business solutions
P&C insurers increasingly embrace SaaS business models enabled by cloud technology.
Although the insurance industry was slow to warm up to cloud computing, more and more insurers — especially those in the Property and Casualty sector — are now embracing SaaS business models enabled by cloud technology, as they understand the key benefits it offers in today’s competitive and disruption-prone marketplace.
Insurers, although risk-averse as a group, are turning to the cloud as a way to solve specific business issues, including: the ability to evolve their operations quickly and smoothly to meet customer needs; to secure important private data; and to remain agile in an increasingly competitive and dynamic industry landscape. If nothing else, most insurers are now at least trying to gain a better understanding of the cloud destination, to see around the corner and understand where the industry is headed, both operationally and strategically.
Smart strategy
Increasingly, insurers see the cloud as a vital tool for gaining — and maintaining — a competitive edge. In simple terms, cloud computing is the practice of using a network of remote servers hosted on the internet to perform IT functions such as storing and processing data, rather than using local servers or hardware for those tasks.
The pervasiveness of the internet, along with constant advances in software, standardization and virtualization, have helped push a collective pivot to the cloud among insurers. Overall, they find that software as a service (SaaS) business models can lower their upfront capital investment, allow the depreciation of assets off their balance sheet, and enable them to make more strategic spending decisions. Specifically, P&C insurers recognize more and more that moving key business operations to a cloud model is becoming essential to increase or maintain profitability and diversify their own risk.
How to delegate
In IT, as well as on the business side, it is crucial to separate non-differentiating work from value-added work — and to optimize non-differentiating work, as a way both to minimize cost and avoid distraction. A move to a SaaS environment allows insurers to delegate non-strategic technological work to a third party and focus on IT that can lead to greater innovation and give them a long-term competitive advantage.
In fact, the cloud delivers specific critical benefits when it comes to simplifying IT and broader operations; this, in turn, benefits the insurance customer. As with other industries, insurers who are unwilling or unable to innovate and evolve will simply become irrelevant or may even cease to exist. This existential risk applies not only to P&C insurance companies, but to technology companies as well. The ability of companies such as Facebook, Amazon, Netflix and Google to constantly reinvent themselves has driven mainstream consumer expectations to new heights — and there is no turning back. This very visible and popular behavior is putting pressure on all technology providers to practice rapid iteration.
The lay of the land
New business challenges in the P&C sector also contribute to the race to the cloud. These changes include:
- New insurance risks are constantly cropping up, and many are uninsured. These include: driverless cars, legalized marijuana, the explosion in opioid use, the Internet of Things and the cyber world itself. These emerging risks offer opportunities for P&C insurers, but they also require agility, rapid iteration and experimentation to get new products to market faster, while also managing risk exposure.
- Privacy regulations are rapidly becoming stricter and requiring compliance with stringent industry requirements. For instance, a newly enforceable European Union law, General Data Protection Regulation (GDPR), gives EU citizens control over their personal data. Regulatory bodies in countries outside of the EU are adopting similar laws. This poses a significant challenge for insurers because it increases already-rigorous privacy compliance requirements.
- P&C insurers are looking to the cloud as the gold standard in data protection and security. As the stakes become higher, insurers are increasingly relying on cloud providers because they have stronger capabilities in this area than any individual company. For example, when a cloud provider observes an attack pattern, it takes mitigation action that protects all of its customers.
Faced with these myriad challenges, P&C insurers realize that maintaining proprietary, on-premise software burdens them in several ways, including: managing infrastructure, complying with changing regulations, maintaining technology upgrades and deploying new capabilities.
Creating ecosystems
With cloud computing, insurers can rely on third-party technology partners to provide and manage not just the software, but an entire platform that advances P&C industry capabilities. Notably, strong cloud partners will not only manage day-to-day data security and technological upgrades. With the ability to iterate solutions faster and deliver value in small increments, it will be important for the technology providers and the technology consumers to find new ways to collaborate that result in the most pressing needs being identified and addressed. The ability to iterate on important topics allows participants to avoid customization and maximize standard capability.
Transitioning to the cloud offers other essential advantages for insurers, including:
- Software updates are continuously applied and integrated quickly into an insurer’s existing system. Security updates are a key focus with cloud computing, public cloud providers care for millions of solutions across numerous industries and can apply security capability across all industries seamlessly. This is a key capability and need since there are many attackers trying to penetrate our businesses regardless of where they are.
- Cloud enables an ecosystem (Third-party services) change in integration responsibility. The burden can be better distributed between consumers and providers. Integration standardization allows this dynamic to flourish. Providers become publishers, consumers become subscribers. Solutions are provided as ready-made and readily available services. Entry and exit time and cost are significantly reduced which will encourage competition. With easy entry and exit competitive efforts focused on value of services will become more prominent resulting in a more accomplished platform. All participants will be put in a position to provide more and to do it on a rapid cadence. An example of this concept can be observed in retailing based on the Amazon effect. “Delivery in hours as opposed to weeks, returns that are seamless, shipping included in the price”. This same dynamic can be applied to the insurance ecosystem.
- The industry has an increasing demand for seamless engagement with customers and agents. Engagement is not only the experience but also the very valuable time that each participant needs to invest. This causes insurers to constantly innovate how they can provide a rich engagement in a way that insured expect. Since expectations are continuously changing and demanding more the cloud continuous iteration allows test and learn improvements to evolve rapidly over time. The more competitive eco system combined with improving engagement model allows carriers to raise the bar on service to agents and insured.
- The cloud can drive innovation. As the proving ground for new capabilities and product experimentation, it lets insurers capitalize on new opportunities, test viability, and drive better business results –with confidence. The shift of non-differentiated work combined with a low barrier to entry eco system allows new InsurTech and carriers to apply test and learn approaches to new and disruptive technology concepts.
Competitive edge
As today’s marketplace continues to evolve, it is little wonder P&C insurers have an increasing appetite for SaaS solutions. New risks and opportunities are constantly — almost relentlessly — presenting themselves, and insurers must reinvent their business accordingly. Partnering with solution providers that maximize cloud benefits allows insurers to shift the burden of updating their technology and securing their data to providers, change their own business capability at a cadence that has been unheard of historically, and focus their very valuable energy on innovating their business. By leveraging the capabilities of the cloud, smart insurers can adapt to the new reality and compete successfully, today — and tomorrow.
Alex Naddaff (anaddaff@guidewire.com) is Chief Cloud Officer at Guidewire Software, provider of the industry platform for Property and Casualty insurance.
These opinions are the author’s own.
See also:
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