Can the cloud solve all the problems of every insurer?
Sun Life recently announced that it had selected AWS as “its long-term strategic cloud technology provider to become a cloud-first organization, drive ongoing innovation, and develop new digital client experiences.” Sun Life will leverage AWS not only for cloud infrastructure, but for analytics, machine learning, storage, security, and databases as well. Sun Life believes this will “drive operational efficiency and innovation to the company’s clients and employees.” Sun Life is certainly not the first or only carrier to go all-in on the cloud, but many in the insurance industry—and especially the life insurance industry—are not as far down the cloud path as Sun Life.
I’m especially aware of this because in 2010, I was an industry analyst covering core systems and emerging technologies for insurance. I presented the topic “SaaS and Cloud for Insurers: What You Need to Know” at a conference, and the slides had such captivating titles as, “So Who’s Being SaaSy and Why?” and “Is Now the Time for Core Systems on SaaS?” I even had a screen shot of an AWS console (foreshadowing, perhaps?!). I urged carriers to start small by experimenting, and to dream big about what they could do with the cloud. Despite lots of nodding heads in the audience, the industry was still dealing with the aftermath of the financial crisis and needed more time to contemplate such a huge shift.
In this blog post, I’ll take a look at some of the historical obstacles for cloud adoption in the insurance industry, the ways in which the cloud is being leveraged in the industry today, and how the breadth and depth of services that run on AWS, along with the vast ecosystem of cloud technology partners, are key to enabling insurers to realize the true potential of the cloud.
Obstacles for cloud adoption
In 2012, I was interviewed in Property Casualty 360 and gave some ideas for carriers to use the public cloud for high performance computing where health or personal data wasn’t involved, and a private cloud where it was. I got encouraging emails thanking me for the suggestions. However, the industry was still working through the backlog of projects that were paused from 2007 to 2011. A couple of years later I joined an insurance core systems software vendor, and we developed a “core systems on the cloud” offering. Property and casualty (P&C) carriers, who often move faster than life and annuities (L&A) insurers, began leveraging the cloud offering, but in L&A almost every customer asked for on-premises options and pricing in my first couple of years there. Concerns ranged from “it’s a security issue” to “I need more control,” to “I can’t integrate my mainframes with the cloud,” but some L&A carriers started down the “core on the cloud” path. Most insurers had difficulty convincing their executive committees that the rewards would outweigh the risks, and understandably so given the perception of the maturity of the cloud in insurance at the time.
Adoption of cloud in insurance has mostly been hampered by a number of factors and perception challenges, but perhaps the greatest issue has ironically been the positive (but not accurate) perception that “cloud” is the answer to business problems. If we look at the definition of cloud—at AWS we define it as the on-demand delivery of IT resources over the Internet with pay-as-you-go pricing—it’s quite clear that cloud itself isn’t intended to solve business problems on its own, but the tools and solutions that run in the cloud—together with the right changes to business processes—can help with the business and digital transformation journeys.
How the cloud is being used by insurers today
If we look at how carriers are using cloud capabilities today, it’s most often in one of several ways:
- In the most traditional sense, for on-demand delivery of IT resources over the Internet with pay-as-you-go pricing
- To replace other forms of high-performance computing (e.g., grid computing) for tasks like actuarial and risk modeling
- Some limited storage/compute functionality
- SaaS applications
In other words, cloud is being used primarily to address IT challenges, such as cost reduction, reducing time to deploy servers, etc. Now, the last bucket—SaaS applications—is quite broad and certainly can help drive digital transformation, but if you heard a Head of Digital Transformation say that their strategy was to leverage SaaS applications, you’d likely laugh on the inside. So how can cloud help an insurer with their digital transformation? Let’s take a look!
The scope of the value of the cloud for insurance
Over the past 15 years, cloud computing has matured tremendously, and that maturation has brought with it a large ecosystem of services and partners that can address a far greater number of business problems than most companies realize. AWS today offers over 200 services, ranging from traditional computing-as-a-service (use and configure AWS servers on demand) to serverless (run code on the AWS cloud without worrying about configuring the underlying servers), and from essentially limitless storage to pre-built artificial intelligence (AI) and machine learning (ML) services. AWS also partners with hundreds of ISVs, SIs, and InsurTechs, from niche players to global powerhouses. These changes don’t solve business challenges, but let’s look at how everything can be pulled together to affect real change.
It’s important to first fully understand what the maturity and breadth of cloud services, tools, solutions, and partnerships means from a technical perspective. Here are some key technology benefits of leveraging a modern cloud platform like AWS:
- Increased infrastructure agility
- Insurers can very quickly develop and roll out new applications
- Teams can experiment and innovate more quickly and frequently
- If an experiment fails, you can always de-provision those resources with minimal risk
- Insurers tended to over-provision computing resources to ensure they had enough capacity to handle their business operations at the peak level of activity
- With the cloud, they can provision the amount of resources that they actually need, knowing they can instantly scale up or down along with the needs of their business, which also reduces cost and improves the their ability to meet their users’ demands
- Increased innovation (though this is also a key business benefit)
- Insurers can innovate faster because they can focus their highly valuable IT resources on developing applications that differentiate their business and transform customer experiences instead of the undifferentiated heavy lifting of managing infrastructure and data centers
- For global insurers, a global infrastructure
- A global cloud provider like AWS enables insurers to deploy globally in minutes
- Using AWS, insurers can leverage 81 Availability Zones across 25 geographic regions worldwide and growing
With these technology benefits (and the associated cost savings) available as part of a cloud transformation, digital transformation teams can begin to assemble some business-led cloud initiatives, and they can do it faster and cheaper than before (see “Increased innovation” bullet in previous section). These might include setting up a “NewCo” (greenfield operation that can quickly launch new products nimbly, with greatly improved business processes) using SaaS and cloud technologies that allow for fast time-to-market and a “fail fast” approach. AI and ML can be leveraged to improve many facets of the business from a cost perspective, from underwriting to claims to policyholder services. Natural language processing (NLP) services that use machine learning can also be used to drive customer delight by removing many manual steps from processes without sacrificing service levels.
Using these types of tools, along with low-/no-code tools from AWS partners, insurers can achieve automation that goes way beyond RPA. Customer and distributor self-service can be supercharged, allowing insurers to accept paper forms as though they’re electronic, personalize interactions with both distributors and customers (including employers, affiliate groups, etc. for group business), and generally have the flexibility to pursue new opportunities ranging from new products to new distribution channels.
Lastly, insurers can benefit from the innovations and investments of cloud providers. For example, serverless computing allows an insurer to not only pay for the servers that provide the computing power they need, but to do so down to the second, while no longer having to worry about provisioning and configuring servers. That can allow innovation down to the smallest scale at minimal cost. This in turn allows insurers to be nimble in ways that simply weren’t possible before, with smaller teams and less risk at a lower cost.
When you think of the cloud, you may be thinking of “infrastructure-as-a-service,” or simply hardware or software as a service. While the cloud itself won’t solve your problems (unless your only problems are around technology cost and availability), with all of the tools, solutions, and innovations that are part of the right cloud provider’s offering and ecosystem, you can address many critical business and technology challenges. From improving database scale and speed while lowering costs to helping develop new insurance products in record time, the cloud has a great deal to offer. How you choose to use the many capabilities is, in large part, what determines the value you get from it. As more carriers come to understand this, I expect we will see a lot more insurers follow in Sun Life’s footsteps! To learn more about what AWS is doing in insurance, visit the Financial Services page on the AWS website.