How many transformative technologies can one industry endure in a 12-month period? Transformative itself may be the early favorite for Word of the Year in insurance technology if it's not beaten out by another serious contender: disruptive.

We may go out of our way to place too much pressure on one piece of technology—such as telematics—to lead the industry into the promised land, but despite the hype it's hard to argue that the use of cloud computing is going to have a powerful effect on the industry.

The next 10 years will offer great challenges as carriers look to secure their operations via a private cloud yet still have access to large amounts of third-party data and—even more important—tremendous computing power to analyze all that data.

It's difficult to say which area of the cloud will be more appealing to insurers. Bill Hartnett, who operates his own consulting firm today after years of running Microsoft's insurance operations, believes the economics of computation is what makes the cloud attractive to insurers.

"You can get massive computational power without building your own clusters or grids," he says. "That would not be available to a small company in the past without a massive investment."

Large insurers may be able to afford dedicated servers to increase the computer power within their enterprise, but the mid-tier could only look on with envy.

The so-called grid computing that companies experimented with several years ago was designed to take advantage of the unused horsepower residing within all the desktop computers within an office, but as Novarica analyst Chad Hersh points out, a substantial investment was needed up front to purchase a grid management system.

"The ongoing costs are small, but the upfront costs are not negligible by any sense," he says.

So why bother when you can go into the cloud and get all the assistance you need at a smaller percentage of the cost involved with ownership.

As insurers gather more data, its value will only increase when carriers are able to find the best—and least expensive—ways to analyze the data and pull relevant information from it. That is a difficult task for smaller carriers that don't have the ability in-house to perform such a task without shutting down everything else they do.

I'm not sure if the cloud will be transformative, but I believe it will offer many insurers the opportunity to do things that will improve their business performance and allow them to make smarter decisions—both about their business and how they run their business.

Special Reports /

Cloud Computing: Transformative, Disruptive, and a Smart Way to Do Business

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