In the Cloud
Migrating systems to the cloud in the age of COVID and climate change has several advantages.
- Julien Victor
- October 2020
COVID-19 hasn't slowed down insurance companies. They've been able to have their employees access their systems from home and continue to work as before. That's not surprising since most insurers were already supporting remote access. So when insurers' home offices are hit by future natural disasters intensified by climate change, such as more intense hurricanes, tornadoes or floods, it's very likely they will be able to keep functioning smoothly.
Even though insurers have kept their internal systems accessible during the pandemic, there's still a strong case for migrating key systems to the cloud when they're being updated. While that's particularly true for ceded reinsurance management systems, it also applies to all insurance software.
Insurance executives have traditionally resisted letting a third party store their data. But as hosted systems have gained in popularity, that concern has lessened.
There are several key reasons why moving to the cloud is an ideal way to go in today's business and technical environment:
Simpler access, better security. In noncloud systems, the task of securing and maintaining users' access to multiple on-premise applications is very complex and can be daunting for some IT teams. Furthermore, adding an extra layer of security for remote access to those applications, such as a VPN, can slow down connection and make the user experience stressful. Such measures aren't needed to assure a high level of security with a cloud system. Cloud-based systems are natively designed to simplify secure users' access to hosted solutions.
By having different providers host different solutions, the insurer divides risk and responsibility into smaller pieces. A smaller IT workforce can make sure that the remaining internal systems are always up and running. Also, hosted solutions should incorporate the combined security demands of all the provider's clients. Combining those safeguards results in greater security.
The vendor of a cloud system should run penetration tests every two or three months to ensure there are no gaps that a hacker can penetrate. An insurer with billions of dollars in premiums may have hundreds or even thousands of pieces of software, and it's not always feasible to regularly test all of their systems.
Vendor cloud insurtech systems all claim they're secure, but when you're looking for a cloud solution, insist on answers to detailed questions. Make the vendor prove that it provides top-notch security.
Lower ongoing costs. Initial installation costs are similar to the cost of a hosted or an internal system. But the ongoing cost of maintenance and updates should be significantly lower for a cloud solution. Insurers don't need to invest in more hardware. It takes advantage of economies of scale because the vendor is taking care of updates and maintenance for many insurers.
The cloud is the wave of the future. Five years ago, few insurers were interested in hosted/cloud solutions. But, today, that's changed completely. More business (and personal) applications are now on the cloud. If you insist on an internal system, you're fighting the trend. With a hosted system, not only do insurers know the cost ahead of time but they also get better security, support and maintenance.
COVID and climate changes are unprecedented global disasters, and it's hard to predict the consequences over the next decade. Both, however, have reinforced the need for insurers to be able to keep running no matter what, and getting on the cloud is a key strategy for greater ongoing resiliency.
Best’s Review contributor Julien Victor is the chief executive officer of reinsurance management systems provider Prima Solutions. He can be reached at email@example.com.