Will The Cloud Rain On My Parade?

From Wall Street to Madison Avenue, cloud computing has become an essential buzzword. Investors know it is something big with a large financial impact, akin to the dot-com revolution. Marketers know that you just aren't cool unless you have it. Business executives look down on you if you don't have it, because they conclude you must be wasting money. So what is it? 

The cloud is the confluence of several different ideas made possible by recent developments in both hardware and software. We will leave the technical details for the technical journals. Jumping to the end result: It facilitates substantial cost savings both for vendors of computing services and consumers of computing services, including P&C insurers, while simultaneously providing flexibility that just did not exist before. Cloud computing represents a whole new way of doing things. Getting more capability for less money is irresistibly attractive and compels industries to put a lot of energy into the adoption of cloud computing. 

Even if your company doesn't have any of its computers in the cloud, your vendors likely do. For the purposes of this article, the meaning of cloud computing is narrowed to three most-relevant concepts:

1. You don't have to install an application on your desktop computer to use the software that you need to do your job.
2. Your software vendors are becoming service vendors instead of product vendors.
3. You are no longer aware of where the computers you are using are actually located.

Let's look at each of these concepts and consider their implications, beginning with the first:

1. You don't have to install an application on your desktop computer to use the software that you need to do your work. This idea is mostly facilitated by web applications. Google's gmail is a perfect example from the consumer world. You can access gmail from most any computer, whether it is an Apple, a Microsoft-based system, an open source system such as Linux, or a mobile device. All you need is a way to browse the web. You can read, forward, sort, organize, and archive your emails without ever installing an email application on your computer, and without storing any email data on your computer. 

Now contrast that with the pre-cloud way of doing things. You would have to find an email client that supports the vendor and version of the operating system on your computer. You would also have to ensure you meet the system requirements and then navigate the installation process, which may require privileges that you do not have. You have to keep that application up-to-date with patches and also back up your email folders. When you retire that computer and move to a new one, you would do it all over again.  Cloud computing not only reduces this cost, it completely eliminates it. 

2. Your software vendors are becoming service vendors instead of product vendors. You need software to make your business work. The conventional method of getting your software to work is to purchase the software from a vendor and install it on your desktop and/or server computers. You typically need an IT level of expertise to ensure that the software is installed and configured correctly. Subsequently, you would have to invest in the maintenance of that software, making sure that the data are backed up, that it is secure from outside and inside attackers, and so on. Essentially, your vendor turns the software over to you, and it is therefore up to you to provide the environment required to make it function properly.

Conversely, the "cloud" way of providing software is for your vendor to supply you with a user ID and password. This doesn't necessitate an in-depth understanding of infrastructure—that cost is reduced to just providing a computer with Internet access. This is one of the big ideas in cloud computing, as is commonly called Software as a Service, or SaaS for short. 

3. You are no longer aware of where the computers you are using are located. This concept in cloud computing is where its name is derived—your computing resources are out in a large nebulous network into which you can't clearly see. 

In a traditional infrastructure, there are physical computers on site that run certain business applications. The office IT support person can walk into a room and point out the box that is running payroll, the box that is running your email, the box that is running your web site, and so forth. Those computers never change unless the company must upgrade or replace them when they fail.

By contrast, a cloud computing resource is virtual. It never breaks or becomes outdated. The cloud can move around to different locations without you even being aware of the motion. It can expand and contract along with your needs, and that of your clients and policyholders. 

In each of the three areas above, you can significant improvements in both functionality and cost savings when employing the cloud.

Is It Safe? 
The idea that computers you are using to run your company and service your customers are "someplace out there" can be unsettling. This carries over to the vendors that you use—the service they provide may run on computers that are not located in their facilities. You must therefore consider if the reliability, security, and availability of your data are jeopardized by the cloud. 

The idea may sound scary at first. At least that was my experience. We need to carefully think through the implications.

The cloud model of trust is already common in other areas of computing that we don't even think about any more. Consider the following examples:

• Encryption: Each day, you rely on encryption algorithms that only a select number of mathematicians fully understand. It is universally accepted that the https method to transport data protects that data adequately. Every major banking and financial institution allows the movement of money using the public Internet as long as the transaction is secured by https. Your trust in https is not established by your analysis or understanding of the underlying mathematics that make it work. Instead, your trust in https is established by the widespread adoption and proven track record.
• Electronic banking: All of your financial resources are accounted for on computers that you have no idea of their location, what operating system they use, or how they are maintained. You can complete an electronic funds transfer with confidence, even though you probably have no idea how many vendors, products, or networks that transaction relies on. 

The level of trust that using the cloud begs for is not a new concept. There is already a precedent for allowing precious components of your business to live on computing resources that are beyond your direct control. With a little investigation, you can see that cloud computing, when done well, is more trustworthy that traditional in-house computing. Instead of increasing risk, cloud computing can make you more impervious to a breach. Here's why.

One of the important, albeit complex decisions to make when considering cloud computing is the placement of the boundary of control. The boundary of control is a demarcation in your stack of hardware and software below which your cloud vendor controls the system, and above which you control the system. The higher the boundary is, the more your cloud vendor is entrusted to do.

In the insurance and finance industries, there are many requirements that go beyond the basic function of a software service, such as non-repudiation, forensics, standards compliance, legal compliance, and so on. If your cloud vendor can meet all of those requirements for a service, then you can consider leaving the boundary of control above that layer, provided that your vendor can provide a comfort level in meeting those requirements.

If there isn't a vendor that can provide the service with all of your industry specific requirements, then you must retain ownership of that layer, and place the boundary of control below that layer.  You can still enjoy all of the cloud benefits of the lower layers while maintaining the necessary requirements of your service at the layer you control just as you would if there were not a cloud. This may put the SaaS concept of cloud computing out of reach for claims organizations, as SaaS vendors may not meet your insurance-specific requirements mentioned above.

This is the case for the software stack at Arbitration Resolution Services (ARS), for example. ARS has developed proprietary security services that integrate at the operating system level, so the ARS boundary of control is below the operating system. Because there is no cloud vendor that provides the proprietary services, ARS must manage that layer directly. Although ARS cannot make use of SaaS, it can still enjoy the many benefits of cloud computing, as the layers it controls sit comfortably on the cloud services of lower layers.

Economy of Scale
The cost savings from cloud computing are abundant.  Keep in mind, however, that is not the only benefit to using it.  Consolidating computing resources into a large cloud facility brings an economy of scale that opens the path to big-ticket security and reliability resources.

In the traditional model, small- and medium-sized companies purchase adequate network security products, such as firewalls and intrusion prevention systems. However, premium security products are just too expensive to justify the cost. On the other hand, if many companies, including the small, medium, and large, are serviced by a large cloud facility, then there is plenty of budget to use the best-of-breed products. Military-grade network security becomes possible and affordable to businesses of all sizes.

The same economy of scale kicks in for infrastructure too. Premium services, like a remote disaster recovery site that can take over in minutes in the event of a catastrophe, were formerly only available to Fortune 100 companies and the government. Nowadays, elaborate disaster recovery systems—which you hope to never use—are becoming a commodity thanks to the cloud concepts.

The economy of scale reaches beyond just the digital world. Bank-like physical security is often not even on the map for small and medium vendors. By contrast, premium physical security such as multiple guards on site 24×7, hand-print scanners, and precast concrete roofs become automatically included at a reputable cloud facility.

Because of these and many more top-tier protection features that support the cloud, your  digital assets enjoy much stronger protection than they would being physically located in your company's  building or in your vendor's building.

The best-in-class security and integrity offered by the cloud was a technological windfall for ARS. The company provides alternative dispute resolution, which functions like a private court system. In that business, a very high level of data integrity is a necessity. Not only is the availability of the service critical, but also the confidence that the data are protected from theft or modification. As a young company, ARS is not equipped with two security guards behind bulletproof glass, or with remote hot standby disaster recovery sites. Yet, ARS enjoys all of these benefits and protections for its computing resources in the cloud.  For example, even if a falling meteor turns the cloud facility into a crater, the company will be back online within minutes at another location. The cloud-enabled resource pooling yields outstanding data confidence for its business without busting the budget.

The Cloud and Claims Processing
Let's look at how cloud computing could help with the processing of claims in the context of a natural disaster. Traditionally, before the cloud, daily backups of claims databases are taken to an off-site environmentally hardened facility.  In the event of a disaster that destroys the data center, a new data center is assembled, new computing resources are configured, and then the backup from the hardened facility is restored. After these steps are completed, the business can resume operation. This process can typically take weeks to complete for an average-sized data center.

Now contrast that with a data center that operates in the cloud. Because of economy of scale, the claims database can operate with a continuous backup from the primary cloud location to a remote cloud location. The high-speed connection between the cloud facilities would be prohibitively expensive if it were paid for by a single company. In a cloud facility, however, that cost is shared by everyone in the cloud, transforming a live backup to a remote location from a premium-priced luxury into a commodity.

When your cloud vendor is providing the remote continuous backup for you, and disaster strikes, you can have your business back online in a matter of minutes or hours rather than weeks. Computing resources can be provisioned at another location much like a copy-and-paste operation. Your backup data is attached to those new resources and you are back in business. 

There is plenty of hyperbole and confusing buzz surrounding cloud computing. Nevertheless, the benefits are significant, and those benefits go well beyond cost savings. When you are investigating cloud computing, be sure to get clear definitions of terms, as many words used in the cloud computing parlance differ greatly in meaning depending on the context and whom you are talking to.

Cloud computing has come a long way in establishing a proven track record as being a trustworthy staple computing resource. Enjoy getting better service while paying less for it.