Is cloud computing a technology approach that will make adifference for insurers? And just what is cloud computing, anyway?These questions are on the mind of many business and technologyexecutives in insurance today.

To answer these questions, the first task is to explore thescope of cloud computing. It is easy to get confused by the longlist of terms that seem to overlap “cloud,” or that are justdifferent names for the same concept—such as hosted services,managed services, cloud computing, SaaS (Software-as-a-Service),outsourcing, ASP (application services provider), or gridcomputing. Old-timers will even remember the term time-sharing (notthe condos on the beach kind).

The common thread for these terms is that they all representdifferent methods of delivering IT services. When computingresources, data, and applications are owned and managed by theinsurer within their own buildings, then none of these ideasapply.

However, it is becoming harder to find an insurer that owns andmanages 100 percent of their IT resources. Insurers are tryingdifferent IT delivery approaches in an effort to gain moreflexibility at a lower cost. To investigate further, a brief primeron the different options is in order.

Simply put, cloud computing is the use of remote, virtualizedcomputing resources (that are owned by the services provider) inorder to retrieve, on demand, the data, computing cycles, network,storage, or applications that are required by the organization.

Well, maybe that's not so simple. It is easier to distinguishthe different approaches by answering questions such as: “Who ownsthe computing resources and where are they located?” If the insurerowns the servers, hard drives, and other resources, houses them ontheir site, and has hired a third party to run the systems, thenthe approach is called managed services.

In the same scenario, if the resources are located at a remotesite and run by the third party, then it is called hosted services.“Outsourcing” is the overarching term that applies when any thirdparty is hired to handle any task that the insurer would normallydo on their own. So, both managed services and hosted services areforms of outsourcing.

What about Software-as-a-Service? This approach sits somewherebetween managed/hosted services and cloud computing. In the SaaSmodel, the computing resources are not owned by the insurer—rather,the insurer pays for the services that are delivered by anotherfirm. The resources are remote, allowing the insurer to reduce itsIT infrastructure, and the users get the flexibility to consume(and pay for) the services they need when and as they needthem.

SaaS applications can be deployed to many different companies—aone-to-many model. They are not typically customized for onecompany, as in the prior ASP model. If this sounds like cloudcomputing, it is very close, but not necessarily the same.

Pure cloud computing takes the concepts of virtualization to theextreme. Rather than servers, data, and/or other resources sittingin a defined location, the combined resources from many locationsmay be harnessed to optimize performance and resource utilization.In addition, cloud computing can be applied to any type ofresource—not just software.

Need some data storage space? Just make a request to the cloudand you will be allotted the proper amount, which may be physicallylocated in New York or New Delhi. More network bandwidth requiredto handle phone calls after a CAT? Just reach out to the cloud anddial up your capacity. Looking for real-time weather data to assessthe risks of an approaching hurricane? Reach out to your friendlydata provider to request risk data in the cloud. All of thesecapabilities and many more are here today or coming soon to a cloudnear you.

Now that we have covered the different options available, sowhat? Will these approaches—particularly cloud computing—reallymake a difference for insurers? The answer here is yes, but theimpact will begin in small measure and grow over time. Oneimportant thing to recognize is that these definitions anddistinctions don't matter to most people, especially businessexecutives.

The main question is whether the services offered by the ITsupplier provide the specific business capabilities that arerequired and provide the flexibility to change volumes or types ofservices—at an appealing price point.

Whether this is, in fact, accomplished via a cloud model, SaaS,or another technical approach is of little concern to the insurerlooking for business capabilities. Another important considerationis the privacy and security of data in the cloud, especiallycustomer data. Today, many private cloud implementations areunderway to address these concerns, but public clouds will becomemore widely used in the future as these remaining issues aretackled.

Ultimately, many services will be delivered via the cloud: data,networking, computing power, storage, and applications. Google,Amazon, IBM, HP, Salesforce, and many others have already madesignificant investments and offer a range of services via thecloud.

Individuals are taking advantage of cloud-based services tostore pictures, share documents, manage their music library, andmore. Businesses, including insurers, are building on theirexperience with outsourcing and earlier delivery models to leveragecloud computing. Insurers are starting with common, genericfunctions such as document and content management.

While insurers remain wary of releasing customer information andmission-critical systems to cloud services providers, SMA expectsthat more and more vertical applications and data will migrate tothe cloud as security and privacy management continue tostrengthen.

Cloud computing is a trend that cannot be ignored. As with manynew technologies, insurers are taking a measured approach, slowlyramping up as the technology becomes more mature and secure. So thenext time someone asks you if you've got your head in the clouds,your new response might be, “No, but my data, applications, andcomputers are all there.”