June 10, 2014

Core systems replacement is always a hot topic at the annual IASA conference, the 2014 edition of which is being held in Indianapolis this week. But the vendor community is reporting that many of their new contracts have a distinct wrinkle: Increasingly, insurance companies are opting to place their core systems in the cloud rather than continue to maintain mainframe systems.

"Of the last eight deals we've made, only one hasn't been cloud," says Andy Scurto, president of ISCS. That's counting customers as low as $25 million in revenue and up to $300 millon, he adds. "Most of it is risk mitigation: They don't want to deal with the complexity of keeping [mainframe] operational."

With insurance increasingly becoming a 24/7 business, Scurto explains, traditional carrier-side data centers become impractical from a maintenance and staffing standpoint. Keeping staff on to deal with a data center around the clock in order to appease agents and customers who want anytime, anywhere access is a losing proposition.

Ross Orrett, global head of insurance industry innovation and development for SAP Canada says that insurers have now reached a high comfort level with cloud software after using it for several years in ancillary functions.

"We were seeing big uptake in our cloud software Success Factors [for human resources management] and Ariba [for procurement management]," Orrett says. SAP also has offered SAP Circular Authority software entirely in the cloud since acquiring it and Orrett's former company, Camilion, last year.

However, Orrett says, when it comes to core systems there is still some variance in insurer strategy. Some want different components of their core software in mainframe and cloud deployments, and so SAP plans to offer over the long term two deployment options for core insurance systems.

"Right now, it's a mixed environment -- they're looking for choice," Orrett says. "We can't put one model out there, because they have a lot of legacy they can't get rid of overnight."

While SAP is looking to become a provider of both infrastructure and software in the cloud, Microsoft is looking to partnerships on the software side and positioning itself as an infrastructure expert. It's partnered with Accenture Duck Creek to offer a version of the latter's core systems software on Microsoft's Azure cloud platform. Berkshire Hathaway Specialty is a recent customer of the combined offering.

"We're going to remain a horizontal product and platform company," says Anthony Jacob, Microsoft's worldwide managing director of insurance partnerships. "But we do have direct engagement with insurance companies when they're turning to our partners."

ABOUT THE AUTHOR
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, ...