Financial services firms have rapidly adopted the cloud for ancillary purposes such as human resources and customer relations. The pace of adoption for core processes has been slower but is quickening.
In financial services, banks are leading the way in embracing the benefits of the cloud. In the UK, for example, new banks like Metro Bank are using the private cloud to run core infrastructure. Meanwhile, since 2016 the likes of Capital One and the World Bank have put the cloud at the centre of their IT strategies.
Insurers have typically lagged behind banks in cloud adoption but their experience is growing. Here we take a look at the state of play and factors driving cloud strategies.
The Current Landscape
Since 2015 a rash of cloud-based insurtech start-ups have been shaking up the insurance market. And we’ve seen leading insurance firms move some operations to the cloud. For example, AIA has embraced the power of the cloud to improve resource-intensive actuarial calculations. Then there’s Aviva, the UK’s largest insurer, who claims the cloud lies at the heart of its business strategy.
However, start-ups aside, relatively few insurers in are using the cloud for core processes such as policy administration, claims handling and reinsurance in their key businesses. As a result, only a small proportion of the overall insurance industry IT workload is on the cloud so far. But we expect to see adoption ramp up as insurers overcome concerns over data security and accept compelling arguments moving processes to the cloud.
Drivers of Cloud Adoption
The classic drivers of cloud adoption for insurers are the same as those across other industries: flexibility, scalability and business continuity.
The ability to transfer a large proportion of hardware, infrastructure and data storage costs to a third party that attractive. The insurance space has seen rapid growth in software as a service (SaaS), and under this model, whereby the SaaS provider takes on the capital cost and much of the risk of developing and maintaining the application for the insurer.
But it’s not just about replicating the firm’s existing processes with lower overheads. Cloud strategies will allow insurers to change the capabilities of their firm and adapt to the ever-increasing needs of customers.
Insurers recognise that cloud adoption may be the most natural way to build pools of structured and unstructured data, and link this “big data” to powerful on-demand analytics that can improve their understanding of customer risk and behaviour. The cloud is also seen as central to 24/7 digital engagement with customers, through apps, bots, and the Internet of Things.
Changing Attitudes to Risk
Just a few years ago, insurers looked on cloud adoption for core systems with great skepticism. Data security was indeed their biggest concern, yet a number of cybersecurity risk events in the financial services industry have proven that on-premise models provide no guarantee of safety.
Many insurers have since come to see the cloud in a new light, noting the security benefits of cloud solutions, such as continuous data monitoring and tighter authorisation procedures. For some, leveraging the non-trivial investments that Microsoft, Amazon, Oracle and others have made in cloud security offers the best solution.
Yet data security will of course remain a major criterion. With the introduction of the EU’s General Data Protection Regulation (GDPR), transparency about where data is stored and who can gain access has come into the spotlight
For insurers, the advantages of moving to the cloud now seems more compelling in terms of reducing IT costs and the flexibility and scalability of operations. The question is no longer whether or not to move core applications to the cloud. Rather, it’s a weighing up of the benefits of a range of public, private, hybrid and SaaS cloud strategies against particular targets. And in terms of staying agile and competitive in today’s emerging digital economy, cloud-based capabilities may well prove to be part of a winning formula.
Written by Angel Indzov
With a business profile rich in certifications and expertise, Angel lives and breathes security in the digital age. With over 10 years of experience in data privacy and compliance and information security, Angel has been part of key corporate projects concerning Security Risk Management, Security Governance, Security Audit and Compliance with customer requirements or relevant industry standards and regulations.