The insurance sector has transformed rapidly in recent years, changing the rules of competition. Fierce competition within the mature sector is forcing profit rates to low levels, and the companies that find low-cost and effective solutions for adopting new technologies are ahead in this competition. Consequently, the adoption and implementation of cloud computing solutions can affect market dynamics.
Source: McKinsey
What are the benefits of using cloud computing on insurance practices?
Cloud services help insurance companies save money, improve insurance practices, claims processing, fraud prevention, customer service and business operations.
Cloud computing means that without developing or purchasing a hardware component, one can use some services such as computing, business processes, data storage, databases, software development, etc. on a pay-per-use basis.
The services which are provided by clouds provide the following benefits:
- Cost effective solution: Since there is no need to build a hardware system it is cost friendly.
- Modernization of core insurance processes: Optimization of underwriting, intelligent claims processing, introduction of customized products, etc.
- Better insight into business processes: More effective fraud analysis, easier analysis of financial performance, solvency, and compliance, etc.
- Better customer relationships: By interpreting data, customer requirements can be better understood.
- Standardization of processes: Worldwide access to clouds is possible anytime and anywhere. Therefore, cloud computing brings ease of doing business.
What is the level of interest in cloud computing within the insurance sector?
According to Novarica, more than 90% of insurance companies are using cloud computing for their business processes as of June 2021. The percentage has increased rapidly in recent years and, as shown in the chart below, 82% of companies intend to continue investing in cloud solutions to some extent by 2022. The study also concludes that cloud strategies are primarily driven by the flexibility requirements of the sector. Deloitte’s report also confirms this assertion, in which they describe speed as the new currency in the insurance sector.
Source: Novarica
What are the use cases of cloud computing for insurance practices?
Cloud computing is a beneficial tool for insurance practices in areas like:
- Analytics
- Introducing system modernization (business flexibility)
- Data storage
- Cost reduction
Analytics
Analytics is one of the most important services that insurance firms can benefit from cloud computing. Analytics increases efficiency in processes like: Underwriting and risk assessment, fraud detection and assessing customer satisfaction. Easy access and use of analytics on cloud services make them convenient tools for insurance companies.
Introducing system modernization (business flexibility)
Compared to most IT processes, the introduction of cloud services requires little time and effort. Moreover, cloud systems are integration-friendly processes. In most cases, a few mouse clicks are all it takes to initiate them. Effortless sharing of company information and 24/7 access to documents are factors that increase business flexibility, especially in times like the Covid 19 pandemic, when remote work was mandatory in many countries.
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Data storage
Cloud services offer their customers different data storage packages, which provide different security measures for data. Nevertheless, cloud computing services offer relatively costless data archiving.
It is important to note that the security of external data can be problematic, especially for insurance companies. In this context, storing different data in archive, nearline, coldline or standard storage clusters, depending on their sensitivity, can ensure data security. It is also important to remember that different storage clusters have different costs. Therefore, to optimize cloud costs, not all data should be stored in the archive unless it is sensitive information.
Cost reduction
Using cloud computing optimizes costs in two ways:
- Cloud computing reduces capital expenditure since there is no need to set up an in-house server.
- Cloud computing indirectly lowers costs by automating many of the insurance practices mentioned above and making them more efficient.
What are the challenges of using cloud computing in insurance practice?
By outsourcing IT services insurance companies may face the following risks:
- Insurance companies may have issues with the availability of the cloud services they purchase. The cloud provider’s servers may be insufficient or far from the insurance company’s location. In addition, the cloud provider’s servers might be powerful enough but shut down for certain reasons, which could negatively affect a firm’s use of cloud computing services.
- Privacy protection and control over data can be problematic when using cloud computing services. Especially with public clouds, data security is not sufficiently protected compared to private clouds.
- There is a risk of data loss while uploading a massive amount of data.
Determine the business requirements your company needs from a cloud service. Different cloud providers have some weaknesses and strengths to supply features like: Computing power, responsiveness, storage area and reliability of the cloud service. Therefore, it is critical to pick vendors wisely.
