Tackling Insurance Transformation through the Cloud

Executives charged with planning and overseeing cloud-based programs should embrace the industry’s traditional risk-averse mindset and develop a strategy and execution plan that are based on proven assets, accelerators and program management techniques.

(Image credit: Dollar Photo Club.)

By Ashish Garg and Michelle Lynch, EY

The P&C insurance industry has traditionally been slow to adopt new technologies. Cloud-based platforms and digital business models are prime (and recent) examples of this hesitancy. Risk-averse cultures and heavy regulatory scrutiny often underlie this behavior.

Today, however, the reduced costs and performance benefits associated with moving applications and processes to the cloud have become too great an incentive for insurers to ignore. A recent study from industry analyst Ovum found that approximately a third of all insurers have either deployed or are testing cloud-based systems for critical business functions, including the heart of the company: policy administration and claims management.

The question is no longer whether insurers should move to the cloud, but instead when, what to move and how they should move. As for the first question, “sooner rather than later” seems to be the consensus. The Ovum report states clearly that, “All insurers must plan to adopt cloud within the next 24 months.” Again, the proven value of the cloud means it should be a “here-and-now” priority for insurers, rather than part of a vaguely defined or futuristic technology vision.

This article will:

  • Outline a number of key business challenges cloud solutions can successfully address;
  • Present a range of questions insurers should ask as they begin to shape their transformation roadmaps and cloud-based initiatives; and
  • Describe the role of managed services in ongoing production support as a means to generate more value from investments in cloud-based solutions.

Why embrace the cloud?—Overcoming business barriers and challenges

Increasing adoption of cloud-based tools is not by itself a sufficient reason for P&C insurers to fall in line. In other words, “just because everybody else is doing it” is not a business case to justify migration to cloud environments. Instead, the value proposition starts with a range of critical business challenges.

GW_TransformCloud_SideBar_01First and foremost, carriers face ongoing operational cost pressures and rising total cost of ownership for their technology. Legacy systems continue to consume valuable financial resources without giving P&C insurers the computing firepower they need to transform operations and deliver the quality experiences today’s policyholders expect. Small and mid-sized carriers in particular may struggle to afford the capital outlays and operational expenses associated with implementing modern technology from market leading vendors. The situation is exacerbated with traditionally high costs for product licenses, infrastructure, implementation, and ongoing application management.

Then there are needs for better support functions across an insurer’s value chain. Many in-house or homegrown solutions for document generation, document storage and reporting are not sophisticated enough to keep pace with the business needs of small and mid-sized P&C carriers. Some large carriers also may have struggled to integrate those functions with their core operational platforms, thereby missing out on opportunities to incrementally improve process efficiency.

Even if insurers have the budget to invest in advanced systems, they may be concerned about the burden implementations can place on their business and IT teams. For small and mid-sized carriers, traditional (on-premise) models for implementation and support are not realistic, given their limited human resources in IT. All carriers are looking to eliminate or reduce fixed costs—so adding staff to support implementations is not a palatable option. Product license and product support costs fees are a similar issue.

The bottom line is that many industry executives and industry analysts recognize the need for advanced technology platforms and better core operational systems. It is just as clear that insurance-specific technology has matured to the point that critical processes and entire functions are now available on an “out-of-the-box” basis. In other words, industry-leading tools are accessible to all types and sizes of carriers and can be mapped to company-specific processes and implemented rather quickly, provided robust program management is in place.

The end goal with new platforms is to reduce the total cost of ownership, not just to minimize implementation fees, but also ongoing application maintenance and regular upgrades. This is the heart of the business case for cloud-based systems. As the Ovum report highlights:

Cloud technology can play a critical role in supporting an insurer’s overall business goals and in supporting its wider ambitions … most cloud strategies in the insurance industry today need to be more comprehensive and must more fully encompass the potential for organizational transformation.

Those “wider ambitions,” like overall business mission and future-state vision, will vary greatly by insurer. The ability to develop and launch products faster is likely to be of great interest to many carriers. For some, improved claims management performance (in the form of improved financial performance and improved customer service) may be an important component of the business case for modernizing legacy platforms, while increased organizational agility may be another priority.

Cloud-based solutions, with their rapid implementation cycles, can help insurers realize business benefits faster, while also providing the foundation for ongoing regular continuous improvement without the higher costs and resource consumption associated with on-premise applications. Further, cloud environments may enable the company to focus key resources on business and operations such as providing best service, launching new products and claims adjudication rather than relatively low-value administrative tasks. The bottom line is that platforms must establish a foundation to support profitable business growth. Strategic planning and ROI modeling will clarify the parameters and milestones on the path ahead.

GW_TransformCloud_SideBar_03What to migrate: the core in the cloud

Migrating applications and processes to the cloud is not a new notion. Many insurers have adopted such capabilities, usually for “back-office” IT functions (like email and business continuity). But, increasingly, core operational systems—policy administration, rating, claims and billing—are well suited for cloud-based models.

It is important to note that pre-configuration and integration based upon industry leading practices are of great interest to all carriers, but especially small and mid-sized carriers, who typically are willing to trade some “individuality” for reduced implementation time and costs, as well as lower support costs.

How to move to the cloud: getting to successful implementation and support

To realize these benefits, implementation approaches must be holistic and strategic—taking into account the full technology lifecycle and the need for organizational transformation. It is critical that operational executives view the cloud as a means to an end—not an end in itself. To put it another way, the goal is not simply to implement new technology or establish a new operating model for key functions; rather, it is to adopt new technology and improve processes in ways that lead to tangible performance improvements and the achievement of core business objectives.

The lifecycle extends from strategic roadmapping and ROI modeling, through design, testing and deployment, to enhancements, upgrades and production support. Cloud in this sense is not a single event or project, but instead becomes “a way of life” in managing insurance operations. For all of these reasons, a proven implementation approach and pre-configured solutions are critical to success.

The importance of change management is worthy of emphasis. Too many insurers have learned the hard way that the change management practices—the “soft stuff”—is critical for realizing substantive business value. Change management strategies, stakeholder readiness assessments and engagement plans, robust training and communications plans and the like often make the difference between mediocre and outstanding ROI.

Lastly, insurers must also have a well thought-out plan for ongoing enhancements, technology upgrades and production support after the initial deployment. Because product portfolios, business processes and regulatory requirements will continue to evolve, insurance technology platforms must be designed and deployed with flexibility in mind. The environment should be configured and so that new components can be added seamlessly, with extensive reuse of existing assets and artifacts. That requires striking a balance between meeting current challenges and instilling appropriate flexibility for the future.

The good news is that carriers have many options when it comes to managing their costs and designing the right cloud-based model—from capacity-based to performance-based contracts featuring service level agreements and other incentives and targets. Shared services and offshoring are two other levers insurers can use to find the right level of flexibility and predictability in managing overhead.

Looking forward: beyond core operations

In thinking about cloud-based solutions, it’s critical to take the long-term view and recognize the need to incorporate new technologies and capabilities that are on the horizon. The impacts of innovations such as telematics, portal technologies, mobile apps and advanced analytical tools are impacting insurance operations from marketing, sales and service, to actuarial and underwriting, to claims. The move to cloud solutions can be the first phase of a longer-term journey to highly evolved, next-generational business models. Thus, initial implementation plans must be thought of in the context in a roadmap for the future.

The bottom line: it’s about transformation, not just technology

There is consensus in the insurance industry that the time has come for widespread adoption of cloud-based operating models and technology environments. Executives charged with planning and overseeing cloud-based programs should embrace the industry’s traditional risk-averse—or risk-aware—mindset and develop a strategy and execution plan that are based on proven assets, accelerators and program management techniques. Not only does such an approach reduce project risk, it can greatly enhance the likelihood that projected ROI will be realized, and realized sooner. For that reason, in making the move to cloud-based models, insurers must think in terms of transformation and not just technology, as well as finding the optimal solution for their unique needs and objectives.

Ashish Garg and Michelle Lynch // Ashish Garg is an Executive Director in the Advisory Services practice of Ernst & Young LLP (EY).  His expertise is in delivering insurance advisory consulting services with specialization in technology and business process solutions. Garg is the lead solution architect for insurance transformation projects in EY, and he is also chief architect, visionary and technical leader behind the firm’s Guidewire SaaS solution, EY Insurance Nexus. He is also currently responsible for emerging and enabling technologies for insurance sector including the EY Insurance Nexus, Mobile/Portal, Insurance Telematics and Enterprise content management. Michelle Lynch is a Financial Services Advisory Business Development Executive focused on Insurance. She leads Business Development across the EY FSO/Guidewire solution as well as other EY offerings such as EY Insurance Nexus, Analytics and Reporting, and Mobile/Portal.  Lynch is responsible identifying and developing opportunities that drive value for our clients. Lynch has over 22 years of information technology, software and services experience.  Throughout her career, she has primarily focused on sales and business development roles allowing her to build deep client and vendor partner relationships.  She has led global alliance teams for companies ranging from small software start-ups to global System Integrators. She joined EY from a leading enterprise software provider in the insurance space      

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