Editor's Note:  JohnSarich is vice president of Strategy at VUESoftware.

While the mere mention of the cloud might raise concerns amonginsurance professionals, cloud technology offers smaller carriersan ability to compete for business on a much larger scale byincreasing efficiency and reducing costs.

For mid-tier insurance companies, the application-deploymentoptions that are available to their larger brethren simply do notexist. Today, the largest insurance carriers often exceed $10billion in revenue while the industry's smallest companies maywrite less than $100 million. Since the top-tier carriers havesignificantly higher budgets, resources, and experience,insurance-software companies often cater their products to meet theneeds of these carriers with the highest revenue numbers.

This reality results in an increased burden for smallerproviders that are already struggling to compete for business withcompanies that can be 10 times their size. The question on theminds of many smaller insurance company CEOs is: "Why can't I getthe same functionality that my larger competitors have, and do iton my budget?"

The short answer to that CEO's question is simply "you can." Andnot only can you get it, but it could very well surpass the featureand functionality of that "big" system.

Smaller companies have the advantage of being nimble, lessbureaucratic, and faster to market with new products and services.But those same smaller companies share a common disadvantage: theyaren't sitting of a pile of cash.

Facing a significant technological and financial disadvantage,small to mid-sized insurance companies might consider turning tothe cloud for applications in policy administration, claims,distribution, and underwriting. Not only does a cloud based systemrequire less of an investment in hardware and infrastructure, cloudsolutions allow for faster deployment, shorter training cycles, andquicker deployment.  

How the cloud offers a solution

In the typical hosted or cloud application, the vendor isproviding the entire infrastructure necessary to operate thesystem. Additionally, because the software is already running onthe vendor's site, it takes very little effort to enable a companyto access the system and operate as if the software was running onits own servers. Users also benefit in upgrades and enhancementssimply by being on the same system as other clients.

The alternative to the cloud is, of course, on premises, whichmeans that the insurance carrier will utilize its own IT staff andsystems to deploy the software. The company will be limited bylicense to the number of users that can access the system, andupgrades are not automatic unless the insurance carrier purchasesmaintenance services as an additional cost of owning thesoftware.

Perhaps, the easiest way to distinguish the difference betweenthe traditional on-premises model and the cloud model is to comparethe costs and functionality of renting a condominium and owning ahouse. Homeownership requires a significant investment, maintenanceand upkeep, and as it ages, it might not be the right house 10years down the road.

Compare to the person who rents a condo or an apartment. Whilethere may not be a yard to play in and not a lot of room to grow,any upkeep is done by the landlord, leaking faucets and drains arefixed by someone else, and if the property is upgraded it is alljust built into the rent.

Obviously, there are advantages and disadvantages to eitheralternative, just as there are advantages and disadvantages of howsoftware is deployed.

For some carriers, security and privacy concerns are the mainobstacles preventing them from a migration away from on-premisessystems. Insurance carriers hold massive amounts of personal andbusiness information that, if breached, would have detrimentaleffects on the company's public image and financial stability. Andmany larger companies can be targets for hackers and others whowant to cause havoc.

But advances in network technology as well as better securityinfrastructure throughout the broad financial-services arena aremitigating many of the perceived risks of cloud based softwarecompared to on-premises.

Cloud technology has the potential to become the "greatequalizer" within the insurance industry. Small and mid-sizecompanies are able to compete in a significantly larger arena withthis type of enterprise system.

While the top-tier providers are largely choosing to remaininternal network users for now, it won't be long before technologyallows for increased data security within cloud enterprise systems.When security is no longer a hotly-debated issue, larger carrierswill likely begin to implement cloud systems to reap the obviousbenefits associated, and soon internal network systems will go theway of the dinosaur.