While the insurance industry remains a step behind others in using technology to drive value, adopting workloads to the cloud can be transformative for the industry. Insurers that can shift more of their operations, including data, processes, apps, and infrastructure, to the cloud will transform themselves into data-driven and customer-centric businesses. Organizations will rely on modernized basic systems, artificial intelligence (AI), machine learning (ML), and intelligent data analytics to get predictive insights and make more informed judgments. These capabilities will be the foundation of successful business models, consumed mainly from the cloud.
Improving operational efficiency and agility
These perks help to explain why so many insurance companies are pushing for a significant increase in public cloud usage. Indeed, most insurers aim to migrate a sizeable portion of their business to the cloud, building on existing workloads over the next several years. In addition, leading insurance firms are experimenting with software-as-a-service (SaaS), platform-as-a-service (PaaS), and other cloud-based computing paradigms to develop a more adaptable cost base. However, insurers must confront key challenges (like data security), internal barriers (like culture change and lack of cloud expertise), and external obstacles to achieving their primary aims of improved agility and digital transformation.
Because of its importance as a business enabler, senior management executives are curious about public cloud adoption. Companies are switching to the public cloud for improved data analytics, including AI and machine learning, and complexity and end-of-system life cycle concerns. However, reducing costs is not a primary objective by most businesses but rather as an outcome of successful migrations. Insurers know how the cloud can help them move forward with critical goals such as operational agility and flexibility, which have long been rapidly accelerated priorities in response to COVID-19. The COVID-19 pandemic once again highlighted the need for insurance companies to be resilient. The pandemic has emphasized the importance of resilience in insurers’ minds, yet binding themselves to a particular cloud vendor may raise concerns. For example, if a particular vendor has a single data center in the country of operation, all operations rely on that data center’s safety.
The majority of insurers see public cloud adoption as a competitive differentiator. It appears to be the case for firms that use the cloud to develop products and services more quickly than their competitors or who can optimize and simplify their internal processes to reduce premiums costs. Reducing costs is critical. In the post-pandemic era, the need for efficiency grows more pressing as costs continue to rise and interest rates remain low. It can also save money for future transformation projects, but technology executives must remember that insurers must change to move as quickly as customers demand.
Challenges to cloud adoption
Public cloud adoption is still in its infancy among most insurers. Among the ones making a move, the priorities have been for transactional workloads such as human resources, regulatory requirements around the capital, risk and asset-liability management, and underwriting. Culture change and lack of knowledge and experience related to public cloud transformation are the top challenges hindering the move. While reducing cost is a priority, it is more critical to small and mid-size players than larger insurers. Large and complex legacy applications also hinder moving data and applications to the cloud. Insurers fear that this technical debt will prevent them from being competitive in the near term, where new entrants and insurtech players find new ways to take pieces away from legacy insurers. Building cloud-native applications would also translate to higher costs since insurers will have to acquire and maintain this know-how.
The hybrid cloud
A hybrid cloud is often cited as a solution that alleviates existing challenges to a certain degree while still meeting business objectives of operational excellence and business agility. However, a vast majority of insurers allocate a small percentage of their IT budgets for cloud adoption, indicating that they may still be experimenting and are not fully committed to this transformation. The lessons taught by early adopters of public cloud technology indicate that a solid cost management framework is required for executives to understand the business case and financial results. They can also assist in managing the introduction of new cloud services, defining key performance indicators, and assisting with the shift from a focus on capital expenditures to an emphasis on operational expenses.
Those insurers that can successfully embrace public cloud adoption have a bright future ahead of them. Leading insurance firms may boost their capacity for innovation and speed to market with new goods and solutions by leveraging cutting-edge data analytics and AI. They have substantially increased their overall tech spend and seek to derive much greater value from their data assets. Many AI technologies can provide significant near-term benefits. For example, robotic process automation (RPA) and intelligent automation suggest insurers want to free their human capital to concentrate on more value-added activities rather than transaction processing. Similarly, insurers adopt AI, machine learning, and sophisticated analytics for more predictive insights to anticipate emerging trends.
It’s no surprise that insurance companies are searching for such transformational perks by utilizing public cloud approaches. Technology has a lot of potentials. The difference between tomorrow’s top performers will be their capacity to convert unrealized possibilities into actual and long-term value.