The exact definition of cloud computing may be up in the air but a large number of companies have embraced it. Amy Ellis reports on the insurance industry’s take-up of cloud technology and the security implications involved.
Cloud computing is the latest technological business trend allowing firms to use the internet for their software and platforms, freeing up space on their own PCs and servers.
According to research conducted by the Cloud Industry Forum, 48% of companies in the UK and Europe currently use a cloud-based service.
However, speaking to brokers, insurers and software providers, it is clear that the definition of exactly what cloud computing is — what the uptake is like, what the problems surrounding it are and where the industry goes from here — is far from crystal clear.
The insurance industry’s reputation for adopting new technology is notoriously slow. But James Sharp, director at Ten Insurance Services — who describes the use of the cloud as any computing done away from site and says that you would be “an idiot” not to adopt it — defends the sector’s take-up of the technology. In fact he highlights that insurers have been industry leaders in this area.
“Acturis, for example, is an application service provider, the information is all in a data service somewhere — not on a broker’s site — and that sort of technology was started in 1994,” he says. “There are more brokers on cloud computing than not, there is more premium transacted in the cloud than not — literally billions of pounds — and I can only see that continuing.”
Lack of understanding
Jem Eskenazi, chief information officer at Groupama, agrees that cloud computing in the insurance sector is not a recent phenomenon. “The term cloud computing may be new, but the concept has been around since the beginning of computing,” he says. “About 15 years ago, the concept was named utility computing, although because of the lack of maturity of the underlying technology the uptake was limited — until [cloud computing firm] Salesforce came up with its ‘software as a service’ platform 12 years ago.”
Potential issues with adoption are due to a lack of understanding of what cloud computing is, says Geoff White, senior market underwriter at the tech media broker division at Zurich, who adds that more needs to be done to educate people, so that they do not simply dismiss it.
“The take-up by insurers is slow, but it will grow as companies see new benefits,” he says. “The difficulty with the insurance sector is that it has always been slow to embrace technology — many of these companies introduced systems in the 1970s and 1980s, which have become integrated into the company and hard wired, making any change costly.”
It is precisely because insurers are slow to adopt new technologies that James Duez, chief information officer at Validus IVC believes they should embrace the cloud.
“Cloud solutions fit because it solves potential technology issues, hurdles and burdens,” he highlights. “The technology becomes the suppliers problem, the insurer is protected from that headache.”
Andy Miller, chief executive officer of the Brokerbility Information Gateway, considers that movement by insurers to the cloud will, therefore, be more of a “migration”.
“This is the future and it is ultimately where everything will need to go,” he says. “It is important that cloud computing is put in front of the decision makers in the business and not IT people — it needs to be the business saying ‘what will this enable us to do?’ — it is important that the business gets to grips with it and doesn’t just see it as a fad.”
Functionality and flexibility
Allianz takes advantage of the form of cloud service that Salesforce offers, as Neil Clutterbuck, director, underwriting & technical, explains: “A number of processes, which were previously heavily reliant on manual intervention, have now been moved to the cloud computing platform with its automated workflow and controls giving greater functionality and flexibility.
“Salesforce has proven itself to be extremely cost-effective. As the system is web-based, there is no requirement for heavy investment on IT infrastructure and maintenance costs are very low.”
But adoption of cloud in the insurance industry is still in its “early stages” says Matt Coates, global lead for cloud strategy at Accenture, who agrees with Mr White that insurers tackle issues such as running legacy systems, which are not easily portable into the cloud.
“However, this is changing and advances in the industry have already underlined the potential of cloud,” he adds.
Mr Eskenazi explains that what is different today is the maturity of the technology, its widespread adoption, and its evident economic benefits. “Companies are realising that they are not in the business of writing software when experts can do it better, and there are no economies of scale in running internal data centres,” he adds.
However, as cloud services are becoming mainstream, concerns about data security are increasing.
Mr Duez says that the issue around data loss is a “genuine concern” with the cloud model, but argues the risk is not increased if insurers hold vendors to the appropriate standards and security procedures — in fact he says it may even be reduced.
“By outsourcing services to a cloud provider the security controls may be less visible but in most cases they may be more secure,” he says. “Large organisations, including insurers, have typically been poor at information security, but having your own sense of control can breed a false sense of comfort. The reality is internal IT expertise within an insurance company is sometimes less than that of a cloud provider, so they are getting a better standard. Cloud providers have been tackling the security of their service up front — and as long as insurers are asking the right questions they will be very secure.”
There may be some uncertainty from the industry around data security, but Colville Wood, managing director of Total Objects, is quick to rebuff any concerns.
“The first concern is ‘how safe is my data’? It is like putting money into a bank, you have two choices — you either build your own safe in your house or you use the bank safe, which one do you think is more secure? And how do you pick a bank? You make sure that you pick the one that is secure and has the right controls in place,” he says. “There are standards that the hosting services sign up to that guarantee a level of security and there are government bodies overseeing that.”
For organisations in highly regulated sectors, security and the safe storage and retrieval of information are “huge issues” adds Piers Linney, co-chief executive officer at Outsourcery.
“A single company may pay a few thousand pounds for an anti-virus programme, a cheap firewall, a database and a server, which could all be lost in the event of a small human error,” he says. “Cloud specialists invest millions in the latest business applications, security measures and high performance servers, storage and disaster recovery, spreading the costs across its customer base, meaning customers get all the benefits — but at an affordable cost. Should disaster strike, all the data is stored off site and at mirrored data centres, meaning disaster recovery is amply catered for using robust facilities that small corporations cannot afford.”
However, according to Paul Hocking, head of technology strategy for LV, insurers have to look beyond security concerns to gain the full benefits of the cloud.
LV currently uses Acturis for its broker system, but Mr Hocking explains that it is reviewing how it leverages the cloud and how much information it places with third parties.
“If you are using a server out in a third-party cloud how do you know where that server physically is and who has jurisdiction over it — that is the big inhibitor for large scale adoption,” he says. “Take the Polaris rating engine, for example, there is no reason that if we needed more capacity that we couldn’t host that on Amazon for instance, rent a bunch of servers for a month and just hook onto it. But in an insurance company there are a number of activities that require customer data and that is the bit that is difficult to put out there, because of adherence to regulation and security.”
It is this aspect that is the main challenge, according to Mr Hocking, but it is one that the insurers and the cloud industry recognises.
“Software companies have gone through their standard phase one of ‘here is the cloud and isn’t it brilliant’, to phase two, which is ‘here is the cloud and look we have some security and regulatory controls in place now’,” he says. “We are starting to see the cloud being provided in a more controlled manner that allows us to keep it within our regulatory requirements, so the cloud industry is maturing to a point where we can look to greater adoption.”
In a time of financial downturn when insurers are watching the pennies, Mr Linney, believes most companies that have survived the recession have done so through cutting operational costs and becoming more “technology-savvy”.
“They are now realising the additional cloud computing delivers improved responsiveness, productivity and scalability, and reduced ownership and energy costs,” he says. “Anyone who has wrestled with starting or running a business will know how much the initial IT set up can cost. Not only is there the initial outlay, but there are also ongoing costs — sometimes unforeseen — such as viruses, support, storage and other issues raise their heads.
“Even a modest e-mail and document server setup, or upgrade, can cost more than £5000 today, which in these economically challenging times is an expensive upfront investment that most organisations could do without. By adopting the cloud computing model, IT becomes an operating expenditure cost and, for as little as £6 per person per month, will deliver most IT requirements underwritten with a 99.9% uptime guarantee.”
Catalyst for insurers
Mr Duez agrees that the current economic climate has been a “catalyst” for insurers taking up cloud-based services where the lack of capital investment requirement makes it an “attractive” prospect.
“Most of the big insurers are in multi-million-pound IT system upgrades, but you define it one year and it is delivered three or four years later, at which point it is not necessarily what you needed as the business will have evolved,” he says. “Taking cloud-based services the sacrifice is that you get something which is generic and not so much tailored, but you know that you can move with the market.”
Mr Coates says that in these “more challenging economic times”, insurers need to achieve profitability in a period of reduced premiums and investment income, while also increasing their speed to market to resist intensifying competitive pressures.
“These challenges can be addressed through an infrastructure cloud solution, which will boost financial flexibility, permanently reduce costs of IT ownership, and also cut operating costs by ensuring services are paid for only when they are used,” he concludes.
- Top 100 Insurtech: Quarter four update
- Roundtable: Is a single customer view taking off in insurance?
- Charles Taylor bolsters liability team by hiring senior sextet from Vericlaim
- I work in insurance: Stephanie Horton, River Canal Rescue
- Insurtech diary: Getting stuck into insurance
- Analysis: The mystery of the missing Insurance Fraud Taskforce report
- Gallagher Bassett acquires claims management firm