IBM Global Business Services Cloud Computing White PaperThe business value of cloudcomputing for insurance
2 The business value of cloud computing for insurance Executive overview Inspired by consumer Internet services, cloud computing Insurers must meet the challenges of a turbulent business is both a user experience and a business model. It provides climate, new regulatory mandates that require sophisticated applications, data and IT resources to users as services analytics and increased third-party involvement in all parts delivered over a network for self-service, economies of scale of the value chain. As a result, many insurance companies are and flexible sourcing (Figure 1). With cloud computing, building even more complex business processes in all aspects it is possible to take advantage of large numbers of highly of their operations, and this is straining capacity. Complex virtualized resources to deliver services more efficiently. applications, data warehouses, server software and new business solutions require a great deal of computing power. Many Enterprises that adopt cloud models can improve employee insurers are feeling the pressure to change significantly the productivity, deploy new products and services faster and way they do business. reduce operating costs, starting with workloads that are ripe for this environment, such as development and test, virtual What insurance companies need is to be able to use new, desktop, collaboration and analytics. scalable service delivery models to support their business application requirements and to speed their products to market. Cloud computing has the potential to help transform the Cloud computing is a valuable delivery model that insurers insurance business. Insurers can look at the four major can use to facilitate or accelerate business transformation. categories of their business processes and applications — front office, back office, compliance and investment — and evaluate what applications could be moved to cloud computing. Figure 1: Cloud computing for service delivery
3 IBM Global Business Services For example, with cloud computing, insurers can provision and scale computing resources to meet periodic demand for actuarial and financial workloads. In the insurance front office, the applications that support agent management, including sales document management and application submission, can be “moved to the cloud.” In the back office, cloud computing The three types of cloud according could support the integration of critical functions such as to the NIST billing and underwriting and enable the transformation of data centers. For compliance, a candidate for cloud computing The National Institute of Standards and Technology could be the preservation of data for audits. identifies three types of cloud computing: What is cloud computing? • Private cloud. The cloud infrastructure is Cloud delivers all kinds of computing — business processes, operated, either on or off their premises, solely applications, software, information, software development for an organization. Either the organization or and deployment and infrastructure — as services. As a result, in a third party can manage it. a cloud computing environment, applications and services are • Public cloud. An organization that sells cloud not tied to specific hardware components. Instead, a globally services makes the cloud infrastructure available accessible network of resources, which are dispensed on to the general public or a large industry group. demand, handles service delivery. • Hybrid cloud. The cloud infrastructure is a composition of two or more clouds that remain IBM defines the cloud as a new way of using and delivering unique entities but are bound together by IT-enabled services. IBM’s approach to cloud computing is standardized or proprietary technology that that a trusted foundation is needed to build the most secure, enables data and application portability (for efficient and resilient platform for services and that you should example, cloud bursting for load-balancing use cloud computing where appropriate. The cloud platform between clouds). manages the services running on the infrastructure. The services provided by the cloud are what the consumers actually use (Figure 2).
4 The business value of cloud computing for insurance CLOUD SERVICES Business Processes, Data collection, desktop virtualization, claims processing, data archiving, e-commerce, Applications and email, collaboration, best practices and analytics information as a Service Software Platform as Application servers, databases, middleware and development tools as a service a Service Infrastructure as a Service Servers, storage and file-systems as a service VIRTUALIZATION STANDARDIZATION AUTOMATION Reduced CostFigure 2: Services in the cloudBenefits of cloud computing for the Improved quality of service indirectly reduces costs byinsurance industry helping retain customers. Cloud offers insurers theThe promise of cloud computing for the insurance opportunity to scale existing IT services such as storageindustry centers on two key priorities: reducing costs and and actuarial computation to keep processing time to aincreasing agility. minimum and optimize certain service levels with dynamic provisioning. Using collaboration and email services availableReducing costs in the cloud also facilitates faster, more efficient customerLike all businesses, insurers are always under pressure to service, keeping customers satisfied and loyal. In the case ofcut costs. It is basically immaterial what type of economy insurers in emerging markets, cloud email, collaboration andwe’re in—there is always a demand to save money wherever infrastructure services can provide the tools they need topossible to improve profit margins. Cloud computing can respond to customers and more without a major expendituresignificantly decrease insurers’ operating and capital that cuts the capital they have to develop products and services.investment costs. Cloud services are available in a pay-per-usemodel. This means no upfront expenditures for services,unlike acquiring new applications. Also, moving labor-intensive but unspecific IT services, such as data collection,business analytics, archiving, monitoring, application testand development and problem determination, can reducethe costs to insurers’ IT departments.
5 IBM Global Business ServicesIncreased agilityDistribution channel pressures and emerging consumerdemands for mass customization and hybrid products aremoving business agility from being a competitive advantageto a necessity. Streamlining product development processes,addressing workloads that ebb and flow, building “productchassis” of common components and adopting agile enabling How insurance companies are currentlytechnologies all are ways to improve agility — and cloud benefiting from cloudcomputing can facilitate these improvements. In the insurance industry, carriers are beginning to useFor example, new channel and market development can be cloud solutions to address issues and opportunities.accomplished more quickly in the cloud because insurers can For example, a leading U.S. life insurance carrier islink to established providers without launching a new business using desktop cloud to provide offshore developerssystem and integrating it with their internal processes. Also, with secure access to its development environmentthe scalability and dynamic provisioning that cloud computing to reduce IT development costs.provides can meet periodic demand for actuarial and financialworkloads or the computational services needed for compliance Another leading provider of wealth managementwith certain regulations. Insurers can ramp up to handle and retirement products is also using desktop cloudpeaks and they, along with their customers, will not notice a to provide a common desktop for the entire enterprise,significant difference in service. ensuring a secure and stable environment while providing an efficient method to update applications.Furthermore, insurers can implement or install new An added benefit of this arrangement has beeninfrastructures in the cloud to support the development increased agility to support the expansion of theand testing of new products. Or, consider the possibility of bank channel by providing immediate provisioninghaving the ACORD framework in the cloud as a business of remote users.service and being able to assemble the pieces you need for Finally, annuity writers are using an internal privateyour product without having to start from the ground up. cloud to optimize in-house resources and the IBM cloud to support on-demand provisioning of additional compute capacity to support increasingly complex hedging models, Other carriers are seeking to use this capability to support variable workloads in the actuarial and compliance departments.
6 The business value of cloud computing for insuranceSuggested cloud computing use cases Building business servicesfor insurance It is possible for insurers to build business services byThe full potential of cloud computing is much more than a combining individual cloud services with proven functionality.cost-focused ROI model. Cloud computing has the potential to For example, an insurance company’s administrators mightcreate business value for insurance companies in a number of find services in the cloud that specifically handle what thatsolution areas (Figure 3). Cloud can help provide access to new company needs and use them. This might be a service in amarkets and new customers, increase customer loyalty and cloud that handles the ACH process or an existing serviceretention and enable new business models and applications. that processes all types of payments by including the payment type in the service request. They might even discover a service that handles the entire billing process from start to finish,Placing the compute and storage requirements of claims data thereby eliminating the need for to purchase, install, upgradein the cloud, for example, allows for a transparent shift of or maintain their own system.transactional workloads to lower-cost and higher-efficiencyservice providers. Another example is capturing real-timeintelligence regarding an accident situation to make it easyfor policyholders using mobile devices and mobile applicationsto send accident data in real-time over the cloud. In a similarway, putting email and whiteboard applications in the cloud canmake it easy for sales agents, employees, field representativesand even developers to share ideas and processes in real-timeusing multiple devices. IBM’s Insurance Solutions Smart Claims Underwriting Optimization Agile Policy Administration Insurance Product Development Customer Rentention & Core Insurance Transformation Insurance Executive Insight Growth Insurance Work Optimization Single View of Customer Insurance Legacy IBM Customer Modernization Insurance Care and Distribution Industry Insight Framework Integrated Risk Management Insurance Financial Planning, Risk Agency Collaboration & Performance Insurance Self-Service Insurance Fraud Analysis & Prevention Insurance New Business Stream lining Solvency II Compliance Insurance Operational & IT RiskFigure 3. The IBM Insurance Industry Framework: Insurance solution areas
7 IBM Global Business ServicesBusiness analytics Systems modernizationBusiness analytics are a key component of insurance. Many insurers have invested considerable capital in multiple,Analytics help insurers with marketing, underwriting, claims, complex and outdated systems. Especially in these uncertainrisk management, governance, compliance and much more. economic times, most cannot “rip and replace” existing sys-Analytics are also increasingly necessary for transactions tems. Cloud computing provides the means for updating corebetween insurers and third parties. Easy access to analytics systems and technology, such as policy administration, under-services on the cloud platform, combined with the ability writing and claims, in ways that limit risk, but provide value andto adjust computing capacity on demand, makes business do not involve a huge outlay of capital.analytics on the cloud a good fit for insurance, especially whenreporting customization extends beyond the capabilities of Complianceinternal development staff. These analytics services can be For compliance, insurers can take advantage of infrastructuretied into one or more data streams as needed to obtain the as a service to handle the hardware and space necessarynecessary business intelligence (assuming the service can for data archiving and retrieval. They could even contracthandle the required type of analytics). Over time, analytics with a third-party that specializes in data compliance afteron the cloud can develop into a series of standardized services they put data in the cloud. Business processes as a service canthat insurers can exploit profitably without having to invest help automate systems and workflow, standardize processesconsiderable capital. and optimize information input and retrieval to facilitate the preparation for audit or to meet specific complianceStart-ups and emerging markets requirements.Start-up insurers or insurers in emerging markets can operateon proven applications and resources, which lowers the cost Investmentsof entering the insurance marketplace. Small insurers that The analytics and modeling involved in strategic investingare very concerned about expenses can take advantage of are possible candidates for the cloud; the generic processesnetworked storage and hardware without the worries of local involved could be accessed from the cloud and specific, secureservers going down or disaster recovery. IT staff will no data supplied by the insurers. Also the rapid time to marketlonger have to manually set up systems and install software, benefits of cloud, discussed in an earlier section, could also besimplifying management. applied to new investment products or offerings.
8 The business value of cloud computing for insuranceUser developed applications Next stepsIn all insurance areas, there is pent-up demand for small The benefits and possible uses for cloud computing thatutility applications. For example, an insurer might have a we have outlined in this paper indicate that insurers shouldsegmented marketing campaign application that only runs consider pursuing the use of cloud computing as a way offor four weeks or a customer poll or questionnaire. These reducing costs and increasing agility. The most effective wayapplications are typically designed, developed and deployed of doing this is to create a cloud enablement plan that is precisein hours or days instead of weeks or months. A common about which insurance business processes can benefit fromconstraint in servicing these requests is the provisioning time. cloud and how to move specific workloads. One way to do thisIn most IT departments, it takes longer to provision a usable would be to take the IBM Insurance Industry Frameworksystem than it takes to develop the solution. Furthermore, Model (see Figure 3) and identify specific processes andIT typically doesn’t have the agility required to acquire, workloads that match the characteristics that are most suitableprovision and then reclaim the infrastructure for these types for movement to a cloud infrastructure.of applications. Cloud can help ease burden on IT, whileenabling line of business users to develop timely, creative Deciding where to use cloudbusiness solutions. When trying to compare the characteristics of a process suitable for cloud versus other options, such as outsourcingExtended collaboration or an application service provider, it is useful to examine theMany insurers have large IT shops and they frequently characteristics of the process. Treat it as a “pros and cons”supplement their onshore development with offshore exercise and consider the advantages and disadvantages ofdevelopment, which adds complexity to the development using a cloud model for that process. If the process is a genericprocess. Offshore resources can change regularly as new one that is not considered absolutely essential to differentiatingprojects start and existing projects finish. A cloud-based your business competitively, but it takes a great deal of time,collaboration environment enables an insurer to reduce resources and computing, that is a process that could bethe cost of providing collaboration tools to a workforce considered a good candidate for the cloud. Some processeswhen there are frequent changes in user involvement, to consider are:geographic constraints or when users need email onlywhen communicating with others in the organization. • New product development and pricing • Marketing applications and software • IT support services for risk management, which includes the infrastructure, databases, data management and security, loading and unloading of data and data cleansing • Document management systems and all other support systems for claims • Databases and modeling systems such as RMS for earthquakes and other perils and predictive analytics systems for actuarial services • Payroll, benefits and learning and development • Software for case management and other legal functions • Asset liability management systems and databases
9 IBM Global Business ServicesNot all processes are necessarily good candidates for a public The best way to approach these issues is by considering acloud. For example, insurance sales and distribution systems hybrid cloud computing strategy. That way you can keepare constantly changing, are not robust and are also viewed as your most valuable, mission critical data and processes incompetitive differentiators, so insurers might wish to consider house, running on a private cloud and use the public cloud forrunning them on a private cloud for now. Certain aspects of data-intensive, cyclical or less risky processes. Further, whenunderwriting, especially the systems, are also probably best selecting a public cloud provider, make sure they offer servicekept within the insurance organization. level agreements (SLAs). A few years ago, when cloud comput- ing was truly nascent, SLAs were hard to come by. However,Another factor in deciding when or for which processes to a number of incidents related to lost data, security breachesuse an external cloud is the overall risks and tradeoffs. and server shutdowns in public clouds have provided theThese include: impetus for vendors to offer SLAs. The key is to consider what the acceptable service levels for your core business• Availability. Network connections can be lost or data applications are and work with your vendor to put SLAs in center servers can shut down. If these are not in a readily place. It is important to remember that these are service- available private cloud, they are under the control of the based SLAs, not customer based, and that the difficulty of public cloud providers rather than the insurer. determining the root cause for service interruptions because• Security, privacy and controls. There have been privacy of the complex nature of the cloud environment will still exist. breaches in cloud computing centers from a number of vendors that have caused multiple problems for the Choosing your cloud solutions companies affected. Additionally, in many public clouds, As more vendors enter the cloud marketplace, the number of applications and data may be moved from country to cloud solutions available will continue to grow. Six months country without an insurer’s knowledge. You can’t audit from now, or even a month from now, there will be many more what you can’t see. applications and processes available in the cloud than there are• Accountability for loss of revenue or security breaches. today. The good news is that it will become easier over time for If a server failure or a data breach in the cloud has an adverse insurers to find services in the cloud that they can use to reduce effect on an insurer, reparation could be a problem. costs, increase agility, speed products to market and streamline• Provider lock-in. It can be difficult to change cloud complex business processes. At the same time, choosing a cloud providers once data has become entrenched with a solution from so many options might be problematic. particular provider.• Data loss. There is a risk that data can be lost if a massive upload to the cloud is necessary for processes such as analytics or data retention and archiving.
10 The business value of cloud computing for insuranceTo understand whether or not a cloud computing solution If you are interested in cloud computing but are not sureprovider is right for your firm you need to take a look at your how to start, or are daunted by the prospect of trying tobusiness and determine what you require. Do you need a few figure out what to move to a cloud on your own, IBM offerssolutions to address specific gaps or issues? Or, would you be consulting engagements that can help insurers bridge thebetter served taking a holistic approach to your business and gap from business requirements to design to deployment byworking with a partner to formulate an overall plan which formulating answers to the following questions:incorporates cloud computing into your processes over time? • How do we innovate faster and how can cloud computing How IBM can help help?IBM offers hundreds of computing solutions that can help • What business value will we achieve by moving to a cloud?insurance companies move to the cloud and facilitate their • Which business areas and workloads should we consider business transformation so that they are faster, more agile, using cloud computing for?more innovative and more responsive to customer needs and • How can we standardize business processes using cloud regulatory demands. With IBM cloud computing solutions, applications and services?insurance companies can take advantage of the flexible service • How ready is our existing application architecture to move delivery and infrastructure necessary to optimize their front to a cloud environment?and back office business processes, compliance and investment. • What cost savings can we expect by moving to a cloud?The core components of IBM cloud solutions for theinsurance industry include offerings for infrastructure,storage, collaboration, development and test, user support andvirtual desktops — all protected with IBM security for cloudcomputing. We can take these components and combinethem with business services available today to form businessprocesses that can facilitate business transformation to drivevalue creation.
11 IBM Global Business ServicesConclusionCloud computing is a delivery model that insurers can use tofacilitate or accelerate business transformation. It providesapplications, data and IT resources to users as services deliveredover a network for self service, economies of scale and flexiblesourcing. With cloud computing, it is possible to manage largenumbers of highly virtualized resources to deliver services.Cloud is a force that is both transformational and disruptive.Therefore, insurers should develop a strategy and implementa-tion plan that embeds cloud computing in their IT strategiesand aligns it with their business models. IBM can assistinsurers in getting started with cloud computing and selectingthe right processes, cloud offerings and model types to helpyou improve your business. We can work with your enterpriseto discuss your challenges and relate how others are usingcloud computing in their current environments to meet theirchallenges. IBM knows the insurance industry and we knowcloud computing, so we are in an excellent position to help youaddress key issues associated with cloud computing.For more informationTo learn more about IBM cloud computing, contact yourlocal IBM representative or visit:ibm.com/services/cloud