Insurers Edge Into Cloud-Related Delivery Options

Insurers have begun to take advantage of cloud-related alternative software and process management delivery options in order to realize advantages of cost reduction, availability and flexible capacity. Privacy and security concerns limit what data can go into the cloud, and under what controls, but cloud computing is reshaping insurers' thinking about the evolution of their technology infrastructure.

Insurers continue to face the limitations of legacy core systems, particularly with regard to their integration limitations, notes Craig Beattie, a UK-based analyst with Celent. Insurers are also wary about any solutions that may draw data from a carrier's data center.

"This is a key issue for any insurer considering a vendor offering," Beattie comments. "The insurer has a secure environment and you're asking them to open a hole in the armor to the cloud — that takes a very trusting CIO."

Nevertheless, where the right controls are in place, cloud-related offerings are taking off, according to Beattie. He cites the example of UK Acturis, a leader in broker systems which by necessity communicate with other businesses, including carriers. "This is a SaaS [software-as-a-service] offering, but since the data has to go out anyway, this delivery mode makes more sense than in other cases," Beattie says.

Carriers also have concerns about compliance with privacy regulations that can vary widely across the jurisdictions they do business in, Beattie relates.

"Insurers have gone to great lengths to find multiple hosting providers in different geographies to satisfy different requirements," Beattie explains, "such as hosting in Germany to comply with EU privacy laws, as FINEOS has done, or Dubai to satisfy concerns of insurers in the Middle East, as Unirisx has done."

Because of such regulatory demands, as well as general liability concerns, insurers must carefully vet their cloud-delivery vendors not only for current state capabilities but future-state operations, as reflected in longer-term planning, according to Fazi Zand, VP of marketing and business development for Exigen Insurance Solutions, a provider of both SaaS-based and on-premise core system offerings.

"The CIO should require a higher level of diligence in verifying the SaaS solution provider's capabilities, capacity and methodology in delivering the level of services and support required by business," Zand advises.

At Reno, Nev.-based EMPLOYERS Holdings, cloud technology has become an integral part of what CIO Rich Hallman calls a hybrid architectural approach. "We are leveraging the cloud -- both Saas and PaaS [platform-as-a-service] -- to initially deliver low-risk, on-demand type services, such as collaboration solutions and commodity-type services, while our tier 1 services are delivered from our internal data centers," Hallman explains.

Hallman's organization seeks to first understand business needs and expectations for a given service and then consider a cloud (SaaS or PaaS) provider for service support and delivery.

"It's important to know your vendors technical structure and operational model as well. Their ability to scale, deliver availability and to be flexible is important, but more importantly is their established security posture," Hallman counsels. "Understand your vendor's security model beyond a review of their SAS 70 to a detailed assessment of their internal procedures, operations and their technical approach."

The stakes for considering a cloud-based approach encompass a decrease in total ownership along with ensuring security, availability, flexibility and capacity for growth, Hallman insists.

"Today we continue to host our critical tier 1 applications from our internal data centers, but potentially see an opportunity to shift this model in the future as the cloud providers begin to mature their offerings related to risk mitigation and privacy," Hallman says. "We also envision our future cloud strategies will begin to transform our current development and service delivery approach to a fast, low-cost way to quickly deliver those new critical business services to our customers."

Editor's Note: Be sure to check out I&T's latest digital issue dedicated to an examination of insurers' use of cloud computing.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio