Benefits and barriers for insurers transitioning to the cloud

At a Glance

Lessons from the C-Suite on what is preventing insurers transitioning core systems to the cloud. Respected insurance technology leader, David Germain, provides his first-hand insights, including ways insurers can overcome the barriers and experience the benefits of becoming nimbler and developing new products while improving customer experience.

5 Minute Read

David Germain

Technology Executive, NED, Board Director, Keynote Speaker, Diversity and Inclusion

If the future is cloud-based, then why aren’t all insurers transitioning their core systems right now?

This is a question I get asked a lot. There are some simple answers, like cost and difficulty, but there are other reasons that perhaps get less airtime.

Before we look at the barriers, it is worth reminding ourselves of the promised benefits of the cloud. In particular, the opportunity for insurers to become nimbler and develop new products while improving customer experience.

Benefits of cloud transformation for insurers

The promise of operational flexibility and agility through shifting core systems to the cloud is not an empty one. However, the use of these terms is so ubiquitous that it is not always clear what the real-world impact could be.

Perhaps the best way to illustrate the advantages of cloud is to take two insurance technology lifecycles for launching a new product.

Legacy Lifecycle

The first lifecycle is steeped in legacy. As a technology leader, the first thing I have to do is set the requirements. This includes ‘spec’ing’ the infrastructure, the servers, the database boxes, and the data centre we are going to host it in. I need to decide whether we are going to do the racking in-house or with a third party. If we choose the latter route, then we need to go through the whole procurement process too. All of this will take approximately three months.

That is three months of non-functional, technical conversations that have nothing to do with the actual product that we are launching.

New World Lifecycle

The second lifecycle follows the new world approach. The larger cloud providers have already developed insurance-specific tooling and hosting packages, which means I do not even need to spec the requirements. All I have to do is configure the cloud package to suit our needs through a catalogue of ready-made integrations, like APIs.

This is where the transition to cloud systems has a transformative effect internally and starts to look like a completely different way of working. The nimbler, better, and faster outcomes that cloud promises are partly delivered through faster time-to-provision and partly through the shift to harmonious product (not technical) teams.

Yet despite the benefits, there are still reasons why insurers hold back on transitioning core systems to the cloud.

Barriers to cloud transformation in insurance

Perhaps the biggest ‘elephant in the room’ when we talk about cloud transformation is the actual willingness to do it.

79%* of large insurers intend to increase their usage of cloud computing in coming years

*Aite-Novarica: Cloud Computing in Insurance – June 2021

If you have a more manual product that still involves person-to-person interaction and you are number one in your market segment, then the business case for change may not be too compelling. Assessing whether to make the transition to cloud depends on your evaluation of product lines, your channels of distribution, how you want to interact with end customers (or intermediaries), and the expectations of the insurance segment you are in.

Understanding the product and consumer needs is the crucial point here. Most large insurers offer more than one product. Some of these are steeped in legacy and may be too difficult and too costly (in terms of technical debt and customer attrition) to transition. Yet there will be other product lines that simply must change to meet consumer demand for flexible, convenient digital services.

Another major blocker is the mindset of executives. Many remain surprised at the cost and timeline for transitioning whole legacy systems to cloud. In my view, this has to change. You have to throw away the traditional business case that relies on net present value (NPV) and return on investment (ROI) within two years. You need a long-term view – ten years at least – that gives you time to build a target operating model around new technology.

Most insurers that have started to incorporate cloud are doing so by analyzing the modern construct of their business. Which products are competitors selling and which ones do you want to sell? What does the market expect? What technologies do you need to support this? The answers to these questions can help prioritize cloud investments to support new products.

The legacy conundrum is a different problem. You could decide to do nothing, or you could decide to make the cloud transition, keep customers informed along the way, and ask them to sign new Ts & Cs. You may lose some of your old customers but you will be left with a modern product and technology environment that gives you an opportunity

Delivering a sustainable low-cost technology environment

Whatever your business drivers, what you are really trying to achieve as a technology leader is a sustainable low-cost technology environment that is easy to monitor, modernise, and maintain. To achieve this requires a long-term mindset from executives, teams with the right mix of skills, and – increasingly – the adoption of cloud. Because, when the next wave of technology and consumer expectations comes along, no insurer wants to be left with yet another costly platform shift.