Introduction

Cloud computing is the next big technology in IT. For once, IT can look at real, cost-effective options to respond to business with real-time agility. With the current economic events, most Insurance CIOs are working with their business partners to optimize IT spend. Cloud computing brings with it a promise of IT simplification and TCO reduction. Vendor offerings in this space are growing by the day, but the challenges of adopting cloud are yet to be fully addressed and many are unknown. Deciding on an appropriate path for onboarding their applications portfolio to the cloud poses a big challenge for insurance CIOs. We take a close look at the insurance value chain and the enabling applications to provide a broad guiding framework for moving these applications onto the cloud in an incremental fashion guided by the maturity of the cloud services. It takes a quick 'dip-stick' view of how the ecosystem influencing cloud computing is likely to be impacted and evolve. In this context, the paper also looks at an analytics-led infrastructure transformation approach that can help insurers achieve this transition reliably .

Insure your life:

Marketing, Sales and Distribution

Data utilized for day-to-day operations and for campaign management can be moved to cloud computing in Wave 1.

Most software utilized in marketing will move to SaaS in Wave 2.

Sales and Distribution Systems, especially those used by captive and independent agents, are likely to be  Wave 2 or Wave 3 migrations to cloud. This is primarily because these systems are not robust, are constantly changing, and tend to     be created in-house, since they are viewed as differentiators. The vendors of agency  systems will begin their migration     to SaaS but will do so very slowly.

What's in the Cloud?

Cloud computing is the next big wave in information technology. It is not a new set of technologies that organizations have to deal with, but a natural evolution of information technology over the decades. The focus continues to be on:

Agility: Ability to provision new hardware and software in a fast and efficient way

Elasticity: Need-based scale-up and scale-down capability

Right Sizing: Optimization of IT footprint based on the business requirements

Simplification: Consolidation of technology stack and applications

Sharing: Optimization of resource usage across user base

Any or all of these models can be enabled using either public (third party) or private (internal to the organization and/or its IT partner) clouds. However, the practical path that most organizations will end-up adopting over time is a combination of multiple cloud provider services (private and public) – in other words a 'federated cloud' providing optimal cost savings and business value

The Impact

The progression of the cloud waves will impact and be impacted by various aspects of how IT is perceived and used today. Some of the key impacted areas will be:

Product Development and Pricing

Service (replacing the concept of Application) Ownership .

Pricing Models

Product Vendor Offerings

IT Service Provider Offerings

Service Ownership

The business community is likely to gain a lot of agility by adopting Cloud Computing. However, the decision about what can be moved to cloud and when is going to be largely driven by a business'willingness to take risk. This makes the business owner a bigger stakeholder in the IT services portfolio.

Pricing Models

The pricing models are likely to evolve as cloud computing matures over the waves. A combination of pressure from insurers for more efficient pricing and initiatives on the part of product and service vendors to remain competitive are likely to lead to very innovative pricing models. Figure 5 shows some of the pricing models that are likely to evolve in the insurance space along with cloud computing waves.

Unit of Usage-based: This model represents the unit-based pricing. It may be tied to number of policies, number of claims, number of documents (Wave 1 migration of document management data), units of data for storage, number of policyholders or customers, (when pricing customer information) and/or policyholder data (for example, number of miles driven per year and where the driver tends to drive).

Product or Service-based: Insurers focus on products and services they are launching, or have in the marketplace, or are retiring. They are likely to gravitate towards pricing where they pay as they grow (on a product or service launch) and get price breaks as they retire products and services.

Business Measures/Metrics-based: As cloud computing matures, insurers are likely to evolve towards this more strategic pricing model. This will involve identification of the key business measures/metrics for each functional area and tying the pricing to these critical metrics. For example, to price SaaS software for marketing, the metric to tie prices to can be hit ratio, number of campaigns, number of marketing collateral created or mailed, number of customers, or number of prospects. For actuarial services, the metrics can be the number of models per peril (earthquake, fire, flood, hurricane, etc.), the number of data loads, number of concurrent models (especially for multi-year trending), number of upgrades, or amount of data storage.

Insurance Action

Insurers will have to define a holistic transformation roadmap taking the business view of the cloud computing waves and their expected impacts. The planning should be done at the enterprise level, keeping in mind the predicted maturity across all the waves and then detailed for the current wave. The detailing can be done at individual division or line of business (LoB) but must keep the holistic picture in mind. Some of the key inputs for this planning exercise are detailed understanding of the current application landscape, constraints, target state requirements, investment requirements, and ROI calculations. The plan, once put into execution, should be monitored for early warnings and the lessons learnt from one implementation should be used to optimize the plan to achieve continuous improvement. Some of the common pitfalls of an IT transformation program are:

Lack of understanding of the current landscape: It is often manual and/or intuition-based rather than factbased. Detailed analysis of the current constraints such as suitability of the application architecture, integration and data dependencies, and data confidentiality and availability requirements are not understood completely while defining the transformation roadmap.

Lack of planning for changes required: The first pitfall often leads to the next. Stemming from the lack of understanding of the current state, one fails to understand what changes are required to the applications to migrate successfully to the new environment. Cloud services will have specific standards that the current application will have to comply with and hence changes may be required. A detailed analysis is required to identify whether the whole or part of the application will move to cloud and how the resource provisioning for the same has to happen in the cloud.

Siloed approach to infrastructure optimization: Cloud computing is all about economy of scale. This in itself necessitates that the organizations derive a holistic plan. As the organizations design their 'federated cloudbased' IT landscape, it is important to understand the interoperability issues, vendor lock-in, and data security and exchange requirements at the enterprise level and not just at individual division or LoB level. Taking a siloed approach leads to implementation surprises and often results in point solutions. This in turn impacts the overall ROI projections.

Analytics-led Transformation

At Online24x7, we address this using analytics. To achieve this, Online24x7 has developed iTransform, a tool for largely automating the process of deriving infrastructure transformation strategy (e.g., the federated virtual private cloud strategy) and providing advice on how cloud computing fits in with the overall infrastructure strategy. Currently, iTransform supports three infrastructure transformation strategies: (1) server virtualization and consolidation; (2) storage optimization (through storage virtualization, thin provisioning, tiering, and information lifecycle management); and (3) software stack consolidation. We are in the process of enhancing this tool to incorporate 'migration to a federated virtual private cloud' as an infrastructure optimization strategy. The iTransform tool has been utilized to derive and execute large-scale infrastructure transformation activities for several large clients. The framework enables:

Fact-based current state analysis by relying on data rather than intuition.

Transparency into the current constraints

Predictability of the changes required, potential challenges, and results through what-if analysis of options

Holistic transformation business case derivation, planning, execution, and monitoring at an enterprise level

Online24x7' Cloud Offerings

The Cloud Waves

While the economics of the cloud answers the 'Why?'and a plethora of cloud services provides the answer for 'How?', the two big questions that remain mostly unanswered are 'What?'and 'When?'.

Riding the Waves

The parameters that will decide what applications may be moved to the cloud and when can be broadly classified into three groups:

Maturity of Cloud Computing: This is a function of robustness, reliability, and cost effectiveness of the services available

Insurers' Willingness: The third and most critical piece of the puzzle is the risk that insurers are willing to take to put their     systems onto a cloud environment. Based on the combination of the first two factors, insurers are likely to calculate the     risk of migration and adopt cloud computing in an incremental manner as shown in Figure 2.

Having said that, it is worth noting that insurers are already looking at early adoption of cloud computing. Some of the key areas where the industry is seeing traction are:

Use of SaaS CRM solutions (Salesforce is very common among leading insurers).

Use of PaaS to set up applications to support functionalities peripheral to core CRM, like case and campaign management.

Migration of high performance computing applications like actuarial calculations onto cloud grid environments.

Storage of historical data that does not have strict compliance requirements .

The Above table provides a high level distribution of application categories across cloud computing waves based on business criticality and risks that insurers are likely to take as cloud computing matures over time.

IT Service Provider Offerings

IT service providers are an integral part of almost all insurers' IT organizations. These service providers will also have to change and adapt to the new rules of the game. They will have to focus on delivering business solutions (base and customized) leveraging SaaS, PaaS, and IaaS. The other key focus area will be enabling the operations layer using these cloud computing techniques. This ability to provide a managed services model to plan, architect, migrate, and maintain solutions on a cloud computing environment will be a key differentiator.

Insurance – What is Ready and What is Not?

At a very high level, the insurance value chain can be broadly classified into two groups – core and support functions. Using the decision framework discussed above, the applications enabling the business functions of the insurance value chain can be categorized across the cloud adoption waves. The core functions within the insurance value chain are likely to see the following cloud adoption trends as shown in Figure 3.

Product Development and Pricing

Storage and historical data for this functional area is a candidate for Wave 1 migration to cloud computing.

Most of the software utilized today is desktop software or point solutions. These will likely move to SaaS in Wave 2

Right Sizing: Optimization of IT footprint based on the business requirements

Underwriting

The core policy administration systems are likely to be Wave 3 cloud migration because of their criticality to the business.

Underwriting systems, which are primarily SQL or Access databases coupled with access to external information sources,     are not likely to be moved to the cloud.

Information Technology

Data storage is a good candidate for Wave 1.

Document management and enterprise content management systems are likely to be part of Wave 1.

Email and workflow systems are also candidates for Wave 1.

offerings use a Pay-Per-Use and Platform Based Model that provide Marketing and Customer Analytics such as Marketing Mix, Promotional Drivers and Affinity Analysis, and Trade Promotion Management Analytics. Any or all of these models can be enabled using either public (third party) or private (internal to the organization and/or its IT partner) clouds.