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THE NEW FRONTIERS

Cloud Computing and the Insurance Industry

2014 1


1. Introduction Cloud computing refers to any web-based service that is an “expandable and on demand” resource. However, according to experts, it is a term used in many different contexts. The National Institute of Standards and Technology (NIST) defines cloud computing as “A model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction”. Cloud computing has myriad definitions, but in the most general sense it means devices linked to data centers located just about anywhere over a combination of wireless and wired networks. In simple definition cloud computing for any business means moving files and the management of them to third-party vendors, meaning off-site vendors. Examples include Salesforce for sales, and Dropbox and Google Docs for files. In essence it is all about where your computing resources reside, who manages them and how you access and pay for Source: Secondary Research; Sutherland Analysis them. Cloud computing is a multifaceted concept and needs to be understood across three dimensions. 1. Characteristics Server virtualization (where multiple server instances are created on one physical server machine) is a key element of the cloud, allowing for the rapid provisioning or de-provisioning of services (often referred to as elasticity). Self service is also a key component, allowing users to provision new or additional server capacity without requiring interaction from the service provider. The capabilities are available over a network and the services used can be measured accurately and charged for on a usage basis. 2. Service delivery Three main types of cloud service have emerged. Infrastructure as a service (IaaS) provides the processing, storage and network capability to a user. Platform as a service (PaaS) provides users with a development platform for the design and test of custom applications. Software as a service (SaaS) provides applications to users through a centralized network allowing access over the internet or intranet.

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Cloud Computing- Service delivery options

3. Deployment models Three main deployment models of cloud computing have developed. Public cloud describes when a third party is providing the cloud service, and does so, on a multi-tenant basis such that different firms share the same infrastructure, platform or instance of the software application. Private cloud describes a situation where the service is operated exclusively for one particular firm. This service can be provided either internally or externally, by a third party provider. Finally, hybrid clouds describe a situation where the service is delivered through a combination of both the public and private cloud models. Importance of Cloud computing Software applications and business process standardization across a company is one of the most important drivers towards adoption of cloud applications – global companies that wish to establish common policies and procedures in processes such as hiring, taking orders, customer service and other critical business activities are increasingly looking to standardize business processes. Cloud computing also provides better data gathering and data analysis capabilities – apart from better solutions in the areas like reduction in number of application fixes, cycle-time reduction in making application enhancements, reduction in systems downtime and reduction in IT costs. Some of the major functions that would benefit from the use of cloud computing are; marketing, sales, customer service, human resources, finance, legal, and others. The adoption of Big Data and its benefits are also to drive the use of cloud computing by insurers.

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4. Cloud Computing in the Insurance Industry Insurance industry is still in its early stages as far as cloud adoption is concerned. A few companies are currently using cloud for their business processes, while many others have cloud computing projects in the pilot phase or planned. The reason many businesses are taking to cloud adoption in a big way is cost saving. But for insurance, it can be more than just reducing cost. Insurance companies can use cloud services to manage their distribution channel by providing a platform in the form of agent management system to its agents to manage business and thus serving the end customers in a more effective manner. They can also provide fast and on-the-go services to its end customers, especially commercial clients by incorporating online insurance claims, quoting, etc. Despite these advantages, most insurance organizations are behind the maturity curve on the cloud technology as compared to other industries, mainly due to concerns like data security and privacy. With the anytime-anywhere platform, a business’s data is more vulnerable to attacks. However as the technology evolves and security issues get addressed, these companies would jostle each other to reap the benefits of cloud computing at the platform, infrastructure and software levels. Large players will be looking for implementing large-scale enterprise level clouds or in-house private clouds for its various business functions, building of which requires higher levels of initial investments. On the other hand, small and medium sized businesses may prefer external clouds. Let us understand the benefits of cloud with Axa’s case study.

AXA Seguros using Windows Azure platform AXA Seguros, part of the AXA Group, replaced its inefficient, manual, claims-management system with the one based on the Windows Azure platform to deliver a superior customer service. With the platform, AXA Seguros experienced simplified development and deployment, was able to focus its efforts on business logic rather than technology, and avoided capital expenses. Business Needs AXA Group recognizes that a key ingredient to success in the competitive insurance industry, in addition to a strong portfolio of insurance products, is superior customer service. Companies must offer a way for customers to express concerns, and also deliver speedy resolution to customers’ claims. So, in addition to a toll-free customer service telephone line, AXA Seguros has offered a basic web form through which agents could submit customer claims directly to the company. Employees at the company manually entered the information from the forms into a claims-management system for eventual resolution. Unfortunately, the aging system was siloed from other systems, which resulted in inefficient resolution of insurance claims. Furthermore, the claims-management system that AXA Seguros used lacked development flexibility and could not easily be adapted to meet changing business needs. In addition, because the system was obsolete, it required extensive maintenance and support, which was costly.

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AXA Seguros wanted a new claims-management system that did not rely on manual processes or infrastructure destined for obsolescence, but instead had the flexibility and scalability to grow with the business. At the same time, the insurance company did not want to make costly financial investments or go through the time-consuming process of procuring new infrastructure hardware— which, in this case, could take months and cost tens of thousands of dollars. Solution AXA Seguros decided to implement the Windows Azure platform in a pilot deployment for a new claims-management system. Windows Azure is a cloud services operating system that serves as the development, service hosting, and service management environment for the Windows Azure platform. Windows Azure provides developers with on-demand compute and storage to host and scale, and manages web applications through Microsoft data centers. Working with Microsoft Gold Certified Partner EMLink, AXA Seguros was able to quickly develop its new claims-management system. Two developers from the insurance company worked full-time assisting EMLink, and, despite the fact that their expertise lies in Java development and they had no prior experience with the Microsoft .NET Framework or the C# programming language, they developed the solution in less than two months. The new claims-management system uses Windows Azure for compute processing and Microsoft SQL Azure for its relational database needs, including storing customer information and claimresolution details. The cloud-based solution has custom workflows that route claims to the appropriate department for resolution and then back to the agent, and alerts that notify employees when action needs to be taken on a customer’s behalf. The solution also takes advantage of Microsoft ASP.NET model-view-controller patterns to simplify maintenance and improve interoperability with back-end services. Benefits Still early in its Windows Azure deployment, AXA Seguros is confident that cloud services from Microsoft are good fit for its claims-management system, as well as future solutions that help improve the company’s position as a service leader. By using the Windows Azure platform, AXA Seguros simplified development and deployment, was able to focus on business logic, and reduced its capital expenditures. Simplifies Development and Deployment Though AXA Seguros was initially hesitant to adopt the technology with which it was not familiar, it took only two weeks for developers to learn it – significantly less than what the company anticipated – and quickly develop the cloud-based claims-management solution. Including the planning, development, and deployment, AXA Seguros implemented its solution in only eight weeks, compared to between 18 and 30 weeks with an on-premises solution. Avoids Capital Expenditures By using Windows Azure, AXA Seguros built a highly scalable application without having to invest in costly infrastructure – avoiding a one-time hardware investment of almost USD10,000. At the same

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time, the company takes advantage of the platform’s pay-as-you-go model. On average, AXA Seguros estimates it will spend USD97 each month with Windows Azure – a 65% savings over three years. The company can also continue to rely on cloud services for other applications, further compounding the low total cost of ownership.

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Cloud computing and the insurance industry