January 23, 2014

There's a growing sentiment among insurance IT executives that first-party data centers represent more headaches from a maintenance perspective than benefits. Administering a data center requires devoting a chunk of IT resources to security, troubleshooting, and expansion, while also limiting the ability to scale up as needed. At the same time, insurers are getting more confident about the access, speed, and security of cloud-hosted services, and adding new technologies at the speed demanded by the market often leads companies to look to those kinds of solutions

Selling and leasing back real estate like office space is a common tactic among companies looking to open up their budgets. CNA, the Chicago-based commercial insurer, decided to take a similar path with an Aurora, Ill. data center it completed in 2007. The insurer has entered into a sale-and-leaseback agreement with ByteGrid, a data center administrator, under which ByteGrid will take over the 34,000-square-foot facility and lease back about 30% of its capacity to CNA. ByteGrid will convert the data center to accommodate multiple tenants and is already taking applications.

CNA CIO Ray Oral says that from a cost standpoint, maintaining such a large data center doesn't make sense today.

"We were focusing more on commodity types of work as opposed to business-value-generating initiatives," he says.

The company began discussing the potential fate of the Aurora facility a couple years ago, Oral says, after an internal review found that it was carrying excess capacity. However, it took some time for the market for such a sale to establish itself, he says, and it was crucial to find a vendor that would be the right partner for CNA as a landlord not just in Aurora, but potentially elsewhere.

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"It's best that we're able to do this otherwise, we might call it stranded capacity and not excess," he says. "Plus, ByteGrid knows how to manage these facilities -- we view it as a perfect opportunity to have them manage the Aurora facility, and to the extent that we want to put our tech something else, they present themselves as an option there as well since they have four or five other locations."

The option for scalability is important to CNA's strategy, Oral points out. By shedding itself of the maintenance requirements, the company can continue to innovate in other ways. Because it is comfortable with cloud and other remote options -- and has experience with a provider of those services -- it will be able to add capacity as needed, where it's needed.

"The reality is if you look at the technology development lifecycle overall, things are shrinking, we can store more and it's faster," he says. "We've warmed to things like outsourcing and managed services and being a bit more trusting of the cloud."

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, ...