Cloud computing has been touted as the next great development in business technology. But its potential for the insurance industry, and even its very definition, remain as nebulous as its name implies.
Confusion about the cloud is due, at least in part, to vendors' desire to exploit enthusiasm for cloud technology by stretching the definition to embrace their existing offerings. But even a well-defined concept of cloud computing comprises different tiers of the technology stack, adding to the confusion. Further, some of the critical enabling and limiting factors of cloud are yet to be defined.
"Cloud computing has become a ubiquitous term across the financial services industry and has multiple meanings," remarks Arun Prasad, a consultant with Deloitte in New York. "However, at a high level, it represents a shift in architecture, sourcing and services delivery."
Cloud as a viable sourcing option represents the maturing combination of ultra-configurable systems, existing Internet technology, standardization and virtualization to enable network-based applications running on hardware whose location is undetermined, according to Prasad. "The concept is location-independent resource pooling," he says.
What that amounts to in terms of solution offerings, however, remains a matter of considerable disagreement among those doing the purchasing. An Insurance & Technology/InformationWeek Analytics >cloud computing survey of 214 insurance professionals found that one in 10 respondents believe "cloud computing" to be nothing more than a haphazard marketing term.
Eleven percent of respondents said cloud computing means using specific applications, such as CRM or ERP, over the Internet; 9 percent said it means using a provider's development system to create applications running on a hosted platform; and 8 percent said it is using a provider's raw CPU time and storage resources to run applications insurers buy or develop on their own. Meanwhile, more than half (58 percent) said it was "all of the above." (See chart, Defining Cloud Computing.)
They all have a point, according to Fazi Zand, VP of marketing and business development for Exigen Insurance Solutions, a San Francisco-based provider of software-as-a-service (SaaS) solutions to the insurance industry. "Cloud computing refers to a broad category of technology that leverages the Internet for providing technical infrastructure-as-a-service (IaaS), such as Amazon EC2; application development platforms, or platform-as-a-service (PaaS), such as Google Web Toolkit; and application SaaS, such as the Exigen Suite," Zand says. "SaaS is the application layer in the three-tier structure of cloud computing."
Zand's definition of the cloud is shared by Barbara Koster, CIO of Newark, N.J.-based Prudential ($32.7 billion in revenue), who identifies IaaS, PaaS and SaaS as the three areas where the technology can play successfully. "Cloud computing can be defined as remote computing services accessed using Internet protocols," Koster offers. "When the service is consumed by a human, then access is typically [via] a browser; when it is consumed by a machine, it is a web service."
Prudential currently enjoys what Koster calls two very successful cloud computing programs. "One is application-related, in which we use [San Francisco-based] Salesforce.com , which provides everything, including the network," she relates. "The second is infrastructure around voice and data, through AT&T [Basking Ridge, N.J.]."
A Matter of Scale
The value of cloud computing to Prudential -- or to any other insurer -- is the ability to quickly access infrastructure or software and to scale up or down in usage without heavy up-front investment, according to Jeff Goldberg, an analyst with Celent. Goldberg says insurers should not underestimate the benefits of the cloud, but he cautions that they shouldn't underestimate the costs either.
"With IaaS, you have your own [software] systems that your developers are creating and the other guys will install; it's like you're plugging in a box, but there's no box -- you don't need to manage the infrastructure," he says. "However, you still need your IT guys to run the implementations and manage the applications."
Furthermore, Goldberg warns, "While the up-front capital investment is low, long-term costs could be higher than buying a box yourself." But, he adds, "It's not just a matter of price -- it's about having flexible capacity."