Pros and Cons of Cloud Adoption in Insurance and Financial Services Industry

Sandeep Pandey, CTO, AIA Malaysia

Sandeep Pandey, CTO, AIA Malaysia

The Insurance and financial services industry is in a state of continual transformation. It’s all about “Consistent Customer Experience” for your external as well as internal customers. Rapidly evolving customer expectations, rise of nontraditional channels, and increasing regulatory demand and Data Privacy, demands a swift response from Insurance companies to ensure retention of market share and a profitable sustenance. To function effectively in a customer-driven environment, business agility has emerged as a key imperative for all industries including Insurance.

Cloud is disruptive technologies that can help organisations gain the required agility as they strive to reduce costs and streamline operations. Despite concerns around security, cloud adoption is gaining traction in the financial services industry due to its potential to bring down costs, drive innovation, and enable differentiated products and services.

My point of view will focus on cloud adoption for Insurance, its drivers, benefits, and challenges with security controls and regulatory compliance. It also suggests an approach to adopting the right cloud solution to fully realize the desired benefits and enhance the return on investment.

How Cloud Can Help

Speed is of the essence to conduct quick “Proof of Concepts” or rather more importantly “Proof of Value”. This is quickly achieved through Cloud.

Cloud eliminates the need for heavy infrastructure investments and offers flexible operating models. This translates into shorter development cycles for new offerings, thereby enhancing business agility and market responsiveness. By allowing on-demand infrastructure provisioning on a pay-per-use model, cloud solutions variable capital expenditure into operating expenses. Improved server utilisation rates, software change management optimisation, and automation and reuse enabled by standardised infrastructure help control costs and shorten the time to market. The other benefits of cloud adoption include flexibility, scalability to meet future needs and on-demand capacity, and the ability to better manage IT infrastructure.

Challenges to Cloud Adoption

While a shift to cloud computing offers compelling advantages, it also throws up some challenges:

Security and regulatory compliance: Security and regulations are major barriers to cloud adoption. Depending on the degree of security required, one can choose from three cloud models – public, private, and hybrid.

Organizations should thoroughly evaluate the issues that they seek to resolve, and clearly understand the capabilities offered by different cloud solutions

Cloud solutions vary in the benefits and the degree of security they offer, requiring entities to identify the right procurement strategy based on the models available and the associated benefits."

Security policies of cloud service providers: Public cloud services offer significant opportunities for cost reduction through out-of-the box development frameworks that provide server and database administration as a service, resulting in a reduced tool set and highly optimised service management. However, ensuring the public cloud service provider adheres to the organisation's and regulators’ security policies is a big challenge. Insurance allied industries today can consider moving non-core, non-security sensitive services to the public cloud after a comprehensive due diligence process.

Cost considerations: While an on-premise dedicated private cloud offering goes a long way in mitigating the security concerns, this solution can be expensive due to the need for customisation for non-critical applications. Tailoring a solution to incorporate the organizational culture features, and the level of automation required to meet the organization’s service management processes, is cost-intensive.

Technical limitations: Cloud solutions may lack the technical capability to host specific applications requiring niche software packages and capability-driven architectures. Organization need to identify and factor in such exceptions while building the overall business case.

Approach to Adopting a Private, Public or Hybrid Cloud Solution

While implementing cloud programs, Insurance companies often assume that the characteristics and functionalities of the target state are inherent to the technology, and therefore fail to design a solution that aligns with the strategic organizational goals. This results in mismatched or unrealistic business expectations, and subsequent disillusionment. Organizations should therefore thoroughly evaluate the issues that they seek to resolve, and clearly understand the capabilities offered by different cloud solutions, before embarking on an implementation program. A systematic approach for private cloud adoption comprising the following steps:

• Understand requirements (critical and no critical data)

• Analyze the enabling technology

• Build a business case

• Define deployment strategy and selecting the right partner

• Set short term goals

• Focus on IT service management

• Standardization and automation

Conclusion

An environment marked by Customer Experience, disruptive innovations, rapid commoditization, and ever-evolving customer demands, and the entry of organizations unencumbered by tradition or legacy systems and products, is the new norm in the insurance and financial services industry. To sustain their competitive position, Insurance companies need to be agile to respond and adapt quickly to change and disruption, as they occur. Agility, therefore, is no longer an option but an imperative to stay in business. We have been thus turning to cloud technologies to create a flexible and responsive environment that supports agile methodologies. Since hastily rushing into a cloud program can result in numerous challenges in the longer run, selecting and implementing the right cloud solution is therefore vital including Control measures to ensure regulatory compliance and customer data privacy.