The cloud has been one of the most transformative technologies of the past several decades. According to Gartner, public cloud services spending will increase from $313 billion in 2020 to $482 billion in 2022. Further, by 2026, it will exceed 45 percent of all enterprise IT spending, up from less than 17 percent in 2021. There’s no doubt that cloud adoption will continue to increase.

The COVID-19 pandemic has been a critical driver of this pivot to a “cloud-first adoption policy” in many sectors, including the financial services and insurance industry. According to one study, today’s insurers and their CIOs (chief information officers) are actively embracing cloud infrastructure strategies, while they were “highly skeptical” of cloud computing just five years ago.

Since 2018, the number of insurers using the cloud has increased from 70 percent to more than 90 percent. Insurance companies can leverage many benefits from cloud adoption. These benefits – along with the key challenges and risks – are explored in this article.

What Are the Benefits Driving Cloud Adoption in Insurance?

Historically, the insurance industry had been slow to adopt cloud technology, but now it is coming around. First, the cloud provides “anywhere, anytime access” that enables business continuity for any kind of organization. Shifting to the cloud helps firms to adapt to changing work environments and meet evolving business (and customer) needs.

Cloud technology also improves resiliency and supports collaboration among team members that are geographically dispersed. It reduces manual efforts, improves processes, drives greater operational efficiencies, and creates more opportunities to deliver better customer experiences.

Some other critical benefits of the cloud for insurers are:

Increase Infrastructure Agility

By adopting a cloud-first adoption policy, insurance organizations can modernize and optimize their legacy, on-premises infrastructure. A cloud-based infrastructure, which can be easily deployed, allows insurance teams to develop and roll out new products or applications more quickly and achieve faster time-to-market.

In the long term, the cloud is the key to modernizing enterprise application platforms and helping insurance companies successfully implement digital transformation initiatives. This is why a survey by EY found that for 61 percent of respondents, digital transformation is the primary trigger for cloud adoption.

Easy Scalability

Traditionally, insurers would over-allocate computing and IT resources to handle sudden spikes in demand. This practice frequently results in waste and increased costs. In contrast, the cloud’s elastic, scalable architecture is flexible. As business needs change, insurers can scale these resources up or down while controlling costs and eliminating resource waste.

Accelerate Innovation and Enhance Customer Experiences

Modern insurance buyers demand digital solutions, fast answers, and customized offerings. For 80 percent of consumers, brand experiences are as critical as the products. Legacy, on-premises infrastructure is not agile enough to support these new-age customer needs.

But the cloud is. By moving to the cloud, insurers can speed up innovation and offer meaningful digital experiences to improve customer satisfaction and build loyalty.

Reduce Costs

According to one survey, respondents reported a 27.4 percent average reduction in IT infrastructure cost per user after moving to AWS (Amazon Web Service). With cloud-based solutions and SaaS platforms, insurance companies can save the hardware and data center costs associated with on-premises IT infrastructures.

Moreover, pay-as-you-go pricing cuts initial capital expenditure (CAPEX), while ongoing operating expenditures (OPEX) are transparent, predictable, and easier to control.

Further, the cloud helps automate several routine insurance processes such as customer enrollment, claims management, and underwriting, which reduces operational costs even more.

Improve Operational Efficiency

In the cloud, insurance companies can leverage artificial intelligence (AI) and machine learning (ML) technologies to streamline many business processes and workflows, such as lead qualification, underwriting, claims processing, and policyholder services.

The cloud also lets insurers leverage big data to improve risk prediction accuracy during underwriting, process claims faster to reduce fraud, design personalized marketing experiences, and identify new cross-sell opportunities.

In addition, insurers can analyze customer data in the cloud to gauge intent and sentiment, eliminate or reduce manual processes, and ultimately delight customers with personalized and timely insurance offerings.

What Are the Challenges and Risks of Cloud Adoption in Insurance?

According to EY’s survey, data security is one of the critical risks in the cloud, with 59 percent of respondents identifying it as their most serious concern. Other common concerns around cloud adoption for insurers are:

  • Compliance risk;
  • Regulatory risk;
  • People and skillset risk, particularly around lack of internal knowledge and capabilities.

On the compliance front, insurers worry about the risk of non-compliance with the General Data Protection Regulation (GDPR) and other country-specific or regional laws. Respondents were also concerned about the risk of vendor lock-in, which is when a business is forced to continue using a product because the cost of switching to another cloud service provider is high.

Identify such risks early with a detailed cloud risk and security assessment. This assessment can help insurance firms establish a robust cloud risk management framework, assess risk probability, and mitigate potential harm.

Many insurance companies also worry about internal challenges that could slow down or hurt cloud adoption, such as:

  • Technical challenges, including rewriting app architecture and interoperability issues;
  • Cultural change and resistance to change;
  • Persistence of legacy systems;
  • Continued dependence on business-critical non-cloud systems.

Many insurers also struggle to estimate the future total cost of ownership of migrating to the cloud, while others have concerns about cloud performance, availability, and latency. All these challenges keep insurers from adopting a potentially beneficial cloud-first policy.

To eliminate these challenges and assure smooth, seamless cloud migration, first understand the business needs driving the need for the cloud. Insurers must also:

  • Design a cloud strategy and create a detailed migration plan;
  • Identify teams, roles, and responsibilities to manage the migration and post-migration activities;
  • Identify all relevant data security and privacy regulations;
  • Establish a comprehensive governance structure;
  • Identify all key performance indicators (KPIs) to measure cloud performance;
  • Train staff on best practices to make the best use of the cloud.

It’s also crucial to understand the different cloud models and identify the model that best suits the needs of the insurance company and its customers.

What Are the Top Cloud Solutions in Insurance

Cloud computing has redefined insurance business models and changed how insurance is bought, sold, and used. This journey to the cloud starts by selecting the right cloud services provider and cloud platform. Here are the three most popular public cloud providers.

Amazon Web Services

AWS is the world’s top public cloud provider. By moving their on-premises applications to AWS, insurers can:

  • Quickly launch new digital customer experiences;
  • Deliver personalized insurance products and services;
  • Modernize existing core systems or implement more agile core systems;
  • Leverage data to better identify risk and improve underwriting processes;
  • Quickly respond to regulatory changes.

Microsoft Azure

Microsoft Azure is another good choice for insurers looking to distribute their complex, mission-critical computing tasks across cloud-based resources. With Azure, insurance companies pay only for the resources and capabilities they need and use without having to deploy, manage, and upgrade hardware.

They can also extend on-premises resources with cloud capacity, run workloads faster and more frequently, and leverage cloud-scale data analysis to make better decisions.

Google Cloud for Insurance

Google Cloud enables insurers to leverage data analytics capabilities at scale to gain critical insights for better business decisions. They can also:

  • Better predict and manage risk;
  • Deliver better customer experiences to drive retention;
  • Lower costs and increase customer satisfaction with a conversational AI-based contact center;
  • Reduce security risk with a Google Cloud’s Risk Protection Program;
  • Calculate and simulate risk at scale, in real-time or on-demand, without building a server farm.

Schedule a Demo with Reciprocity ROAR About Cloud Security

The cloud offers numerous benefits for insurance firms looking to modernize legacy infrastructure. At the same time, insurers understand how important it is to secure the cloud and manage compliance risks.

Fortunately, Reciprocity ROAR‘s integrated risk management platform makes it possible to manage these risks and minimize their impact.

Reciprocity ROAR enables cybersecurity and risk managers in insurance organizations to manage risk, compliance, audit, governance, and policies from a single, centralized source of truth. The automated workflows and insightful reporting features enable insurers to manage tasks with optimal visibility.

Schedule a free demo of Reciprocity ROAR to see what it can do for your organization.