(Anil Annadata is the CEO of CodeObjects.)

While the cost benefits of cloud-delivered software are often written about and widely accepted, it's the additional and new opportunities offered with the cloud—especially the indirect opportunities—that might deliver the greatest benefit to the insurance industry.

After some initial skepticism, the insurance industry is beginning to gain confidence in the cloud as a software delivery method. The cost benefits and quick implementation are just too tempting to ignore. So, as insurers work through their questions about business continuity, scalability, and data security, they are taking notice of the plethora of possibilities offered with cloud implementations.

Traditional on-premise software installations are still where the industry is emotionally most comfortable. Everything is in-house and they can control the environment, the data, the maintenance, and the related processes. However, it wasn't that long ago that building their own in-house system was the preference over buying packaged solutions from vendors. Just as time made the industry more comfortable with the buy versus build option, it will take time for the industry to be fully comfortable with the on-premise versus cloud-delivered option.

As the cloud's adoption increases and becomes more mainstream, insurers will begin to realize the benefits of the cloud involve more than just cost savings. One analyst firm indicated that companies typically spend more than 75 percent of their total IT budget on maintaining and running existing systems and software infrastructure—keeping the lights on—leaving only 25 percent for new development and innovation.

Consider what can be done if that 25 percent more than tripled by leveraging the cloud. It's not the cost savings, but the reinvestment of the budget and using other people's (i.e. the cloud vendor's) resources and technology investments that can bring the greatest value.

A quick review of the cost savings includes everything from elimination of licensing fees with a shift to usage fees; significant reduction in the need for an in-house technology infrastructure; no installation costs and minimal implementation costs; and the challenge of ongoing maintenance shifted to the cloud solution provider.

Taking the discussion from the obvious to the less obvious benefits and indirect opportunities presented with the cloud leads to topics ranging from improved competitiveness, to focusing on the business of insurance and differentiators, to enjoying a current and modern technology infrastructure with built-in redundancy for business continuity.

Leveling the Playing Field

Given the relatively lost cost of entry, often with a pay-as-you-go pricing model, for cloud-offered solutions, combined with quick implementation, even the smallest insurers can take advantage of the latest that technology has to offer. Technology infrastructure and resources that were previously out of reach due to extremely limited IT budgets and no room for failure left the small and many mid-size insurers at a significant technological and competitive disadvantage.

Entering new markets, enabling the ideal user experience, responding quickly to market and regulatory changes, and expanding through new distribution channels are only a sampling of the new opportunities with cloud offerings that level the playing field for insurers.

Focus on Insurance versus IT

Regardless of the size, carriers are in the business of insurance rather than IT. Being able to focus both financial resources and people resources on supporting and enhancing the business of insurance will always be time and money better spent than on IT resources and technology. And, if insurers are going to 'innovate' shouldn't that innovation have more to do with insurance than with technology?

Insurers can let someone else (i.e. the cloud solution providers) focus investments of time and money on innovation in IT, while the insurers take advantage of the investment, but at only a fraction of the cost. After all, technology and software innovation is what software solution providers are good at and is required for them to stay competitive.

Invest in Differentiators

While core processing (claims, billing, and policy administration) is the lifeblood of every insurance company, the processes, regulations, and data requirements have a lot of similarity and overlap between insurers. Core processing is fairly predictable and repetitive within an insurance organization. Why not move the predictable and repetitive core processing to the cloud, where it can be supported and maintained by a staff and a technology infrastructure dedicated to core processing?

By leveraging the economies of scale of a cloud core solution provider, insurers have a quality core processing environment and can spend their time and effort on refining and expanding their market differentiators.

Business Continuity with Built-In Redundancy

Any quality cloud-based solution provider is going to ensure its insurer clients' business continuity with a redundant processing environment, located in multiple geographic locations. Should a disaster strike one location, the cloud provider can automatically switch processing to the alternate location to ensure an uninterrupted processing environment for the insurer.

Like anything else that is new, the insurance industry will take its time before fully embracing cloud solutions. Whether an insurer embraces the cloud now or waits till later, they will eventually adopt the cloud for some aspect of their business. Today it could offer an insurer a competitive advantage, while later it will become a competitive necessity.

Anil Annadata is the CEO of CodeObjects. He can be reached via email at anil.annadata@codeobjects.com

Special Reports /

Cloud Offers Insurers More than Cost Savings

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