In a market haunted by costly tech failures, can cloud computing really work
Mention the Cloud and most people will look at the sky. Mention it to someone who knows anything about the future of insurance technology and there a good chance that they will look thoughtful.
The Cloud is more formally known as cloud computing and is internet-based computing in which large groups of remote servers are networked to allow sharing of data-processing tasks, centralised data storage and online access to computer services or resources.
The advantages of the Cloud can be substantial. Large amounts of data can be kept in various locations around the world, enabling services to be constantly supplied and easily backed up if a server breaks down in one location. It also allows for software to be supplied quickly over the internet without having to rely on the old system of using compact discs. The Cloud can also be extremely cost-efficient, as it is available at lower rates than other services, and offers a vast amount of storage space.
However, there are also disadvantages, some of which are very important for (re)insurers. Security is one of these issues. As the Cloud relies on a wide range of servers all over the world, this can make it vulnerable to hackers. And as (re)insurers deal with highly sensitive information about their clients, security is always going to be an issue.
In fact cloud computing is one of the emerging risks that Swiss Re’s July 2014 SONAR report addresses. In it the reinsurer said that: “However, shared access also fuels risks such as data leakage, data loss and hijacking of computing resources. The risks of moving to the Cloud are still largely unknown. The Cloud era is here and a lot of companies see their future tightly associated with it. Potential benefits are great, but the concentration of critical data and computer services heightens vulnerability.”
Despite the latter, the insurance industry has been taking advantage of the potential that the Cloud offers. Consulting and outsourcing provider Capgemini said in a recent report that the Cloud could provide significant advantages for some insurers: “Cloud computing has the potential to provide significant benefits within the property and casualty (P&C) insurance industry. P&C insurers are increasingly adopting cloud services to gain operational flexibility and generate costs savings, but most P&C insurers lack a holistic Cloud strategy to fully reap the business potential of cloud computing. Deploying a mix of Cloud services delivery models across the value chain can benefit P&C insurers by helping to address customer data privacy/security and compliance concerns—making Cloud computing one of the top technology priorities for P&C insurers.”
Even the downside of the Cloud seems to be offering insurance opportunities. In 2013 Lockton Re announced that it had brokered a deal between CloudInsure, which is a cloud insurance platform, and Liberty International Underwriters.
According to Lockton Re, CloudInsure clients will now have access to specialist privacy cover for data stored in the Cloud should it be unintentionally released, as well as technology errors and omissions coverage if their systems fail to deliver as promised. The data insurance products will provide access to pre- and post-loss support services including pre-loss risk management, post-loss computer forensics, credit monitoring and restoration, data breach notification services and legal advice.
Management consulting and technology firm Accenture is a company that has made a point of stressing the advantages in using the Cloud. In a report published in 2012 on the way that insurers can make best use of the Cloud, Accenture said that: “Every carrier is trying to figure out how to do a better job of servicing its customers and allowing them to carry out their insurance business on their own terms, anywhere and anytime. To do that, these companies know they must follow in the footsteps of their retail industry colleagues, jettisoning their front-end legacy systems which are woefully slow and inefficient.
“The multi-channel solutions on the drawing board are invariably cloud solutions. Carriers are starting to design social platforms and communities as vehicles for creating value, segmenting consumers, and gathering ideas from open innovation with the public. In addition, carriers recognise the opportunity that social media presents to target customers with dedicated offers for insurance. A simple example: if a customer announces travel plans on Facebook or Twitter, an insurer can immediately offer him or her appropriate travel insurance products.”
One point is worth mentioning in conclusion. Anyone who has ever walked around Lloyd’s of London will have seen the number of people still taking large bundles of paper in and out of the building in leather folios, despite the fact that electronic storage devices are far more efficient. Other areas of insurance, such as UK price comparison websites and their insurer panels, have invested more in technology, but the Cloud is still radical in the industry. Will the insurance sector really therefore embrace it, and risk the costly investment against uncertain rewards?
The answer is that they are already. According to the results of a survey that was announced in September 2014 by software provider SAP and analyst Ovum, increasing numbers of insurers are making use of the Cloud. The survey said that: “Within the lines of business, 49 percent of decision makers expect SaaS (Software-as-a-Service) to see increased or significantly increased investment over the next 18 months. This will be focused most heavily on operational functions within insurers.”