Cloud computing: The sky’s the limit
Shifting data storage to the cloud has much to offer re/insurers, from improved profitability to business continuity, yet reservations over data security and legacy system migration are holding some firms back. By Hussein Hassanali and Ricky Mahar, Managing Partners, VTX Partners, Volante Global
This article was published in Global Reinsurance Monte Carlo daily magazine (Page 16).
To date, re/insurers have been reticent to take the plunge when it comes to putting their core services into the cloud, with perceived costs and concerns over data governance top concerns.
Re/insurance is a highly regulated industry. Re/insurers must fully understand their risks and practice strict compliance. While the data on in-house servers is owned and controlled by the re/insurers, cloud-based servers are owned by third-party providers and can be both private and public, meaning there is a tradeoff between security and flexibility.
Maintaining data quality and integrity, as well as security requirements for both private and public networks, from dual factor authentication to encryption and enterprise-owned keys, are serious ongoing considerations. And the introduction of GDPR has only heightened some re/insurers’ fears over storing client data with a third-party vendor.
Cloud servers are, in fact, heavily protected from physical and cyber threats. Nevertheless, choosing a trustworthy vendor (and potential back-up vendors) requires significant due diligence.
With margins squeezed and cost reduction high on the agenda, the investment required to migrate or integrate legacy systems is a deterrent for some re/insurers. However, cloud systems can also be deployed quickly with relatively little upfront investment, and may be cheaper than maintaining in-house servers over the long term as server costs are shared amongst all users.
Conversations often focus on cost, but the scope of cloud computing is so much greater. By harnessing the cloud, re/insurers can potentially improve profitability, risk management and resilience. Cloud computing also makes its users more agile by providing flexible, scalable power and capacity.
Cloud-based servers possess huge processing power that is regularly upgraded by vendors, while plug-and-play allows cloud users to continuously innovate by connecting to best-in-class third-party applications.
As the space available in the cloud is much greater than individual servers, vast quantities data can be stored, analysed and modelled. This allows re/insurers to employ powerful analytics tools and run complex scenario and stress tests that can critically improve decision-making.
Improved data capture, historical data analysis and automated links to third-party market information should help underwriters enhance long-term pricing adequacy and profits, while the integration of loss, risk and business data should help re/insurers better manage risk, both internal and external.
Cloud computing can also significantly strengthen business continuity by offering multiple real time backups that would be expensive or impractical to maintain in-house.
The world is getting smaller. As businesses go global and full time equivalent (FTE) movement expands, the most efficient way of operating will be through cloud computing.
Portable cloud solutions allow real time access from anywhere in the world, removing the potential lag time if, for example, an individual in Australia requires modelling or analysis but onsite servers are based in London.
Historically, an insurer in Rwanda may have sent an individual to go between villages to record premium and claims, but if each of these villages receive full 4G data, a simple tablet could be deployed which instantly records and access data over the cloud. The impact of this is huge.
Real time intelligence means re/insurers can apply analytics to better understand their customers, access new distribution channels, enhance marketing strategies, encourage customer loyalty and improve service delivery.
Indeed, the cloud offers re/insurers a new outward-looking, collaborative model through which to deliver products and services, and to respond quickly to ever-evolving customer needs.
As we move towards a more collaborative future, the way we engage with our customers throughout the customer journey – not just at renewal – must evolve. Staying connected with both customers and capacity providers to develop effective long term relationships will be critical.
Thanks to the team at Global Reinsurance for commissioning this article.