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Insurers See Clouds on the Horizon

Cloud computing, SaaS and hosted solutions are expanding insurers’ outsourcing options and promise to help companies be more agile, competitive and cost-effective.

When it comes to future IT trends, the experts are predicting increased clouds — and this forecast is adding an updated twist to the way insurance companies evaluate outsourcing.

Optimizing the New Outsourcing Model
As the role that technology and the IT organization play in the insurance enterprise becomes increasingly strategic and influenced by consumerization, the traditional value of outsourcing as a cost-saver is being expanded. Meanwhile, new outsourcing opportunities are emerging around cloud and web-based initiatives, mobility, real-time interactive customer service, and data management. What is the new thinking in insurance about outsourcing and what are the new opportunities - and risks - in the current hyper-connected global financial services environment?

Cloud computing — the practice of using servers remotely hosted to store, manage or process data — is something that insurers still seem to be approaching curiously and tentatively. However, it’s clear that the cloud is going to become an increasingly important part of their computing and infrastructure strategies over the next several years, as the potential benefits, including reduced operating costs and faster speed to market, become more clear.

There are a number of factors that are persuading businesses of all types to at least test the potential benefits of cloud computing, according to Daan De Groodt, principal with Deloitte Consulting’s outsourcing advisory practice in Atlanta. “We’re seeing clients doing more on a pilot basis in selected areas in adopting cloud computing, and it’s really around reducing the capital spend [and] getting faster access to resources, for example,” he says. “We also see clients with a good existing vendor relationship asking their outsourcing provider to bake in cloud solutions in their model.”

Right now, there’s still more promise than measurable results. According to recent research from Stamford, Conn.-based Gartner, “The shift away from traditional IT acquisition models to public cloud services is still in the very early stages.” However, while cloud adoption is slow, it’s growing steadily: Gartner research indicates public cloud services will grow five times faster than overall IT enterprise spending through 2015. (See this.)

Hurdling the Cloud

There also are some specific hurdles to insurance industry adoption of cloud computing. Notes Deloitte’s De Groodt, the first barrier is that carriers need to become more educated about the benefits and usability of cloud. The second has to do with concerns around data privacy and security that still limit adoption. “The vendor community still needs to do some education and persuasion in the marketplace to show clients that they can maintain the security of client information,” he says.

That said, insurers looking to get more out of limited resources can’t afford to ignore the potential benefits of a cloud strategy. Karen Furtado, partner at research and advisory firm Strategy Meets Action (Boston), says cloud can be a great opportunity for insurers to outsource infrastructure — and this represents the next wave and pickup in outsourcing.

“Infrastructure might not be a core competency of an insurance company — it’s a core need, but maybe not a core competency,” Furtado explains. “While some companies are not willing to outsource their infrastructure, others are becoming more and more open to the concept of cloud and outsourcing that application layer.”

White Plains, N.Y.-based Privilege Underwriters Reciprocals Exchange (PURE) is a six-year-old P&C carrier with an aggressive growth strategy that has embraced outsourcing in general and cloud in particular, according to SVP and CIO Stuart Tainsky. He says the decision to outsource is not about cost, but about being focused on the firm’s strategic goals and objectives.

PURE’s offices require a relatively low profile of technology because it outsources so much, Tainsky reports. The firm has routers that switch through its phone system provider, for instance, so that as the insurer adds new offices across the country and continues to grow, ramp-up time is very quick. For PURE — which launched four lines of business in each of 17 new states in 2011 and is adding more in 2012 — speed is critical, Tainsky stresses.

PURE ($121.8 million in gross written premium) obtains many of its applications through a software-as-a-service (SaaS) model that enables the insurer to hold operating expenses down while boosting performance. With SaaS, insurers don’t need to worry about installation, maintenance or updates. It also enables companies such as PURE to access business functionality that’s typically less expensive than licensed applications. “This way, we let the people who are really good at managing applications do that outside the organization,” Tainsky says.

Peggy Bresnick Kendler has been a writer for 30 years. She has worked as an editor, publicist and school district technology coordinator. During the past decade, Bresnick Kendler has worked for UBM TechWeb on special financialservices technology-centered ... View Full Bio

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