By Joseph Pacor, SAP Insurance Industry Content Director

In a previous posting, I wrote that cloud technology has become business as usual for insurers. I based my conclusion on a study conducted by Ovum on behalf of SAP that involved 200 senior CIOs from the global insurance sector. The study also found many ways in which cloud-based solutions are transforming the industry.

Early adopters have used the cloud technology known as software-as-a-service (SaaS) to support e-mail, backup/archiving, and business continuity. Increasingly, insurers are also supporting core business activities such as customer service, policy administration, underwriting, and fraud detection. In addition, a small but expanding number of companies use the technology for new business acquisitions, marketing, customer targeting, and the development of new products.

Cloud contributes to business growth and agility

Many insurers believe that SaaS will foster business growth and organizational agility by shrinking IT development cycles. This, in turn, will help them respond more rapidly to new business opportunities, move more quickly into new market sectors and countries, and deliver greater product innovation. (See Figure 1)

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Source: Charles Juniper, “The Critical Impact of Cloud for Insurance on Business Transformation,” Ovum, 2014

Figure 1: Agreement/disagreement with statements about the impact of SaaS on insurers

Cloud technology should also help insurers move to a variable IT cost model, reduce overall IT costs, and fundamentally alter the role of IT in an organization. The standardized infrastructure and application components can dramatically shorten development cycles and let insurers fund technology on a subscription basis. In addition, insurers can hand over responsibility for ongoing IT maintenance and the enhancement of platforms and applications.

Insurers need a clear cloud strategy

In this evolving environment, all insurers should have a clearly defined and widely communicated strategy for cloud technology that extends beyond cost reduction. In planning their IT and cloud strategies, insurers must focus on the transformative role that SaaS can have on their organizations. Ovum believes that most cloud strategies in the insurance industry today should be more comprehensive and fully encompass the potential for organizational transformation.

As insurers broaden their cloud strategies, the role of IT in their companies will likely change. Ovum believes that IT personnel will become like brokers, finding relevant cloud vendors to support their companies’ wider business functions. IT groups should thus begin to expand their knowledge of the cloud vendor landscape and actively promote opportunities that cloud solutions enable within their organizations.

It is clear that insurers of different sizes, geographies, and types of business are adopting cloud technology in greater numbers. Smaller players can now access tools that only larger insurers could once afford. The technology should also help new industry entrants gain a foothold more quickly. Both developments will make the industry even more competitive than it is already.  A ‘wait and see’ approach could prove very costly to those that delay their cloud decisions. Insurers should be prepared to leverage cloud computing now to optimize its benefits.

For a brief summary of findings from the Ovum study, click here.

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