What Does The Cloud-Based Insurer Look Like?

"Cloud" is perhaps a fittingly nebulous term for the proliferation of as-a-service models for insurance systems core and ancillary. For much of the cloud's existence, however, many CIOs have viewed the platform with skepticism, fearing snags related to security and data management when critical information is shipped off-site.

But that view is largely fading, especially at newer insurance companies that don't want to deal with the expense associated with the initial and ongoing cost of mainframe architecture. For those companies, the cloud allows them a way to get off the ground quickly and scale up as needed.

"We've been in the cloud for the entire 10 years we've been in existence," says Roger Buss, CIO of Pacific Compensation Insurance, a workers' compensation insurer ($11.5 million in written premium, Q3 2013). "Our original CIO used to call it 'zero footprint,' and I've very quickly come to see that it works very well and it's very cost-effective."

While not all of PacificComp's systems are in a true cloud, Buss notes that all are hosted off-site, including its core policy administration and claims systems. That means that the insurer's IT staff prioritizes development skills instead of maintenance, which Buss says allows the company to try new things easily.

"The application side of the house generally is somewhat larger because we do a fair amount of the development activity ourselves, even using remote facilities," he says. "For example, we were the first production customer on Guidewire ClaimCenter. We have used the model where they have a core that's untouchable, but outside that you can customize the integration and the look and feel of screens. Because we deal with very long-term, complex claims, we have a small staff that can work on meeting the needs of our claims department."

That doesn't mean there's not a place in the insurance industry for mainframe expertise -- it just may be on the vendor side, not the client side. PacificComp's policy administration system is hosted off-site on the standby AS/400 platform. The vendor, which he didn't name, is able to attract the best possible AS/400 staff to maintain its stable of clients.

"So we can tap into the expertise of a few key people there that we probably couldn't afford otherwise," Buss says.

Notably, he adds, whenever PacificComp has thought about insourcing a capability, the cost structure simply reveals itself as untenable. Working with a vendor to develop the perfect hosted system has always been worth the effort, Buss says. But it does change the relationship between CIOs and their applications, he notes.

[Why cloud-based policy admin is gaining popularity]

"You have to shift your thinking to where you're doing a lot more in the area of managing vendors and monitoring what they're doing and staying on top of them," he says. "If you have a good knowledge of the providers, you have some contractual protections around what you're doing, and you're getting third-party or internal reports. You've got a good amount of protection that your data isn't being exposed to others."

ProSight Specialty Insurance, a writer of specialty insurance including marine, construction, and entertainment (more than $1 billion in assets), is another relatively new entrant to the insurance marketplace that leans heavily on the cloud for IT. Jim Klinck, business program delivery manager and chief security officer for the company, is a longtime insurance industry IT professional who says the cloud has a "transformative" effect on IT departments.

"Some people will be able to make that transformation and like the new roles. A lot of the designing and the smart buying is still there," he says.

But even more than that is the cloud's ability to alter allocations in the IT budget away from maintenance and into innovation and development, as Buss suggests, Klinck says.

"It enables the CIO and IT leadership to repurpose spending into more valuable work and changing the cost dynamic," he says. "There's plenty of things that are more aligned with the business than maintenance -- things like big data and analytics -- that you can work on now."

Scalability Is Key

The definition of cloud is famously, well, cloudy, Klinck notes. But ProSight, which started largely with application service provider models, is moving more toward the true cloud, which is totally Internet-based, Klinck says, not in the other direction.

"When a vendor comes in, they often have several different models, but we're transitioning into the hybrid cloud environment," he explains. "Already, a lot of the work we do on systems is contracted out because it is cloud-based. It's a lot easier to provide the security and access to your contracted developers."

The cloud's scalability is part of the attraction to the newest insurance companies, which can't exactly predict what they will need and when. And with no legacy baggage, they are free to add capabilities at will.

"Some of the significant players in this environment will scale and provide a price point and flexibility that I can't get on the physical side. There's a lot of stuff that you have to invest in to do it right, but you need significant scale to be cost effective," Klinck says. "At the same time, I'm not displacing a programming team that's been here for 10 years. It enables you to move more quickly for the business and respond to them quickly."

So what happens when a business unit wants a new capability? Much has been written recently about how other areas of the enterprise besides IT -- especially marketing -- are becoming the biggest purchasers of technology capabilities. Salesforce.com, the software-as-a-service CRM provider, is a fixture at many companies already. Now there are even more systems that line-of-business executives can pick up. It's just another new agenda item for the cloud-based CIO.

"It goes back to the old buzzword of governance," says PacificComp's Buss. "We have a couple of business units here who are doing their own thing in certain areas. It's OK as long as that makes sense in the enterprise architecture and [is] not proliferating multiple solutions for the same problem or creating more integration points than we need because we have too many islands of automation."

For example, Lin Elliott, the investment manager for Texas Farm Bureau, a P&C insurer with 300,000 policyholders, says his involvement in IT is "limited -- I mean, zero." But he had a need for a certain kind of data and analytics capability in order to more effectively manage the company's investments.

[Did you know Lin Elliott has a Super Bowl ring?]

"When it was time for me to report to investment committees or the board of directors, I had to use outside services -- that's basically brokers doing you favors -- when it comes to analytics," he says. "I was looking for something that tied into our accounting that was official."

Texas Farm Bureau had an existing BPO relationship with SunGard that Elliott was able to leverage to gain access to the vendor's iWorks Enterprise Financials business intelligence system. Now Elliott is able to customize reports on his company's investments that allow him to deliver the best data for reporting when it's needed, with minimal impact to the company's overall IT infrastructure.

"We're not using any of our resources; we're not taking up people's time and hiring someone to come in and figure it out for us," he says. "We're through phase one and I can't wait to go through the other three phases and sit down with our CFO or director of finance and say, 'Here's a dashboard to get the data you need,' " he says.

Making things easier on both end users and IT departments is what a lot of cloud vendors identify as the area where they can add the most value. ProSight uses a cloud-based BI platform as well, from iPartners. That vendor's president, Robert Lasher, notes that "IT has a pretty full plate and can't get tied down into reporting. We can interact with the business users and deliver a lot of content out of the box for them."

That's echoed by MajescoMastek Property & Casualty practice leader Anil Chitale, whose company works with PacificComp on billing. "The business users are best suited to drive the functional requirements they need in the system. They can partner with the vendor on those and the CIO, and IT organizations can focus on what they need to do," he says.

That plays out nicely at PacificComp, Buss concludes.

"We've pushed a lot of the report development and cube development out into the business," he says. "What we do is maintain the warehouse and make sure the environment is updated and balanced, and they can do what they want in terms of creating reports."

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio