Just as young businesses like Airbnb and Netflix were born in the cloud, most of today's largest insurers were born in the mainframe. Fifty years ago, when these organizations needed high processing power to handle everything from billing to claims, big iron was simply the best available option.
But now, new cost and competitive pressures are forcing insurance companies to reexamine their mainframe dependence. As the industry charts a path toward the cloud, insurance leaders need an exit strategy that emphasizes the technology and the people who power it to migrate successfully.
Why now is the time to switch
There are two issues that have finally forced insurance company C-suites to have serious conversations about cloud adoption: cost control and flexibility.
From a financial perspective, insurance executives are searching for savings potential wherever possible. Property and casualty insurer yields have consistently declined over the last decade, rates and return on average equity are down and a new presidential administration has triggered both economic and regulatory concerns.
Along with CFOs and COOs, CIOs are laser-focused on cost efficiency, rooting out unnecessary spend in order to prioritize core business operations. The only way to accomplish any of the above is by challenging tradition.
For example, a handful of legacy insurance companies are, for the first time in their decades-long histories, warming up to IT outsourcing as a way to contain expenses. In that vein, the cost of sustaining a mainframe — which encompasses hardware, software and the people who manage it — is becoming a harder pill to swallow, particularly when organizations aren't using their mainframe's full capacity on a regular basis.
For insurers to guarantee a healthy ROI on their cloud ambitions, they'll need to start with thorough planning and due diligence. (Photo: Shutterstock)
Beyond the bottom line, insurance leaders are also on the hook for identifying ways to infuse agility into their business models. Innovations around connected devices, from automotive telematics to wearable health trackers, and the volume of data they generate pose tremendous opportunity for insurers that have the infrastructure to efficiently analyze it. At the same time, customers demand faster, more personalized service than ever before — and plenty of InsurTech startups are emerging to compete for their business.
Insurance companies have historically been reluctant to take a risk on the unknown. But as other industries become living testaments to the cloud's benefits, and external pressures push the issue farther up executives' agendas, insurers must prepare for evolution.
How to prep for a painless migration
Major brands from Coca-Cola to GE have placed large bets on cloud adoption, and the payoff — including scalability, speed to market and lower IT ownership costs — is evident. For insurers to guarantee a healthy ROI on their cloud ambitions, they'll need to start with thorough planning and due diligence.
These are a few steps insurance business and IT leaders must take as they prepare for the technical, operational and cultural aspects of cloud adoption:
- Conduct a cloud-readiness assessment: You won't know where you're headed if you're unsure about where you're starting. The first phase of any cloud migration effort is to take full stock of the applications your organization currently runs (on premise or otherwise). A cross-functional team of subject matter, IT and platform experts should be involved in order to illuminate to what extent each application is used and who uses them, any interdependencies between applications and specific regulatory or security standards they must fulfill. From here, you can begin classifying applications based on ease, cost and time to migrate.
- Develop a proof of concept: Smart insurance leaders will approach cloud adoption like a pool of ice water: if you dive in, you'll shock your system, but if you go in slowly, your body can adjust. To earn internal buy-in for such a contentious move, it helps to have a successful case study under your belt. For instance, once your readiness assessment is complete, the next step may be to pilot migration with a non-mission critical application (one that isn't deeply intertwined with other programs). The same logic applies to insurers attempting to establish new, born-in-the-cloud workloads; rather than deploy a batch of new cloud-based applications, test one to ensure it's fully compatible with your existing mainframe system.
- Prioritize personnel: Though a large contingency of baby boomer mainframe experts is gearing up for retirement, many aren't ready to leave the workforce just yet. As insurers shift more workloads to the cloud, they need a strategy for engaging their mainframe gurus. Before and throughout the adoption process, these subject matter experts can offer invaluable insight into integrating on premise and cloud-based applications, and best practices for managing a hybrid environment. There may also be opportunities to retrain mainframe experts on cloud technology and support, helping evolve their skills to match your increasingly digital business needs.
Insurers are not going to rip and replace their mainframes overnight. Big iron will continue to play an important role in insurance organizations' IT operations. But if the industry hopes to overcome its current cost and competitive challenges, business leaders will need to forge an environment where the cloud and mainframes can coexist.
Brett Moss is SVP and general manager for Hyperscale Cloud at Ensono. He is responsible for the development and growth of managed public cloud services. Prior to taking on this role, Brett was SVP of Sales at Ensono, and held a number of sales leadership positions with Savvis (now part of CenturyLink) and iXL. Brett received a B.S. in Mass Communications and Marketing from Emerson College and holds an MBA with a concentration in Marketing and Strategic Planning from Northeastern University. He can be reached at Brett.Moss@ensono.com.
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