Talking about cloud computing can bring on a serious case of déjà vu. The concept of consuming information technology as a utility sounds, on its surface, a lot like the application service provider (ASP) model of the 1990s that faded away by the early 2000s.
However, this time around the concept of consuming information technology as a service has manifested itself differently, and the widespread adoption of cloud computing in the insurance industry is inevitable. Interest in and usage of cloud is being driven by three key factors:
1. Investment in cloud infrastructure is massive in scale. The ASP model suffered from a number of problems, including limitations of private networks, lack of investment in architecture and bandwidth, and a limited range of software offerings.
Today, cloud can be based on the available-anywhere internet, as well as private networks. Also, cloud providers have sunk millions of dollars into building infrastructure and data centers on a massive scale. With this investment in capacity, cloud providers can slash costs to provide cloud computing at a very attractive cost.
2. People are comfortable with cloud. In the past, most insurers wanted their IT in-house. Today, the industry is already using cloud for point services such as bill review, damage estimating, and other processes. In their personal lives, employees of insurance companies regularly use cloud services to transact business, share and store files, back up data, and more.
[Cloud computing and as-a-service models are gaining traction in insurance; read 4 Insurance Cloud Success Stories]
In addition, rather than being limited to a client/server environment like early ASP models, cloud computing allows any web-enabled software to be a candidate for network delivery via web services and service oriented architectures (SOA). The core processing of policy, claims, and billing administration are candidates for a utility computing model as well, and many core solution providers have rolled out cloud options. As a result, we will continue to see movement away from on-premise, packaged software as companies use best-of-breed components and turn to the cloud to consume services. With more components available publicly, it no longer makes financial sense for insurance companies to build these capabilities in-house.
3. Cloud enables insurers to thrive in a Darwinian economy. In the survival-of-the-fittest struggle that all companies are now part of, the victors will be companies that achieve the fastest speed to market, the greatest flexibility, and the lowest operating cost. Cloud offers compelling business benefits that allow insurers to target those objectives.
Installing, customizing, and maintaining insurance systems have traditionally been time-consuming activities regardless of whether those systems were deployed in-house or at a service bureau. With cloud, insurers can create a virtual server instance easily and deploy business-user-configurable cloud software solutions quickly. As a result, they can launch new products and services faster than ever before.
Insurers are also turning to cloud to reduce costs. On-premise hardware and software deployment requires an up-front investment, as did many iterations of the ASP model where insurers would own the applications being hosted by the provider. Cloud instead turns technology into a true utility, allowing carriers to pay only for the capacity they use and scale that capacity as needed.
A Clear Future for Cloud
There are still barriers to overcome in the adoption of cloud, but utility computing is already becoming a reality. Across all industries, cloud infrastructure service revenues grew 15% between Q4 2011 and Q4 2012, reaching $12.5 billion. Within the insurance industry, cloud is already being widely used in non-core applications. Cloud will also be increasingly important to support new insurer initiatives in social and mobile technology that are demanded by today's consumers.
Unlike limited attempts at utility computing that have come and gone, this time is different. Cloud computing will soon be widespread, lasting, and indispensable in the insurance industry. This time cloud computing is inevitable.
Kevin Mason is Vice President, Product Development and Maintenance at Instec. Kevin has worked in many aspects of software development since 1981, including roles as Product Strategist, Software Development Methodologist, Project Manager, and Technology Architect for companies such as Cincinnati Bell Information Systems, SHL Systemhouse (now part of EDS), AGENCY.COM, and GENECA. He joined Instec in 2008 and is responsible for all development associated with all products.