91ÖÆƬ³§

Define Your Cloud Vision for the Insurance Industry

A strategic approach to migrating to cloud

Analyst Perspective

Transforming insurance with cloud.

The insurance industry stands at the crossroads of tradition and innovation, with cloud migration as a powerful catalyst for transformation. The shift to cloud platforms enables insurers to meet growing customer demands for speed, personalization, and transparency while navigating a landscape of evolving regulatory requirements and fierce competition. However, this transition is not without challenges. Migrating sensitive data and integrating legacy systems into cloud environments can be complex, requiring meticulous planning and risk management. Cybersecurity concerns loom large and integration issues with legacy systems demand strategic planning and execution. Repatriation trends illustrate that the cloud is not a one-size-fits-all solution.

The cloud has redefined approaches to scalability and innovation while highlighting the importance of discerning when and where to adjust strategies. Insurers must weigh the benefits of cloud migration against potential pitfalls, ensuring their strategies align with business goals and customer needs. By doing so, they can navigate this complex landscape, turning challenges into opportunities for growth and resilience. By pairing a clear cloud vision with robust execution plans, the insurance industry is proving that the right strategy can transform perceived roadblocks into pathways for innovation, efficiency, and enhanced customer trust.

Arzoo Wadhvaniya
91ÖÆƬ³§ Analyst, Industry 91ÖÆƬ³§
91ÖÆƬ³§

Executive Summary

Your Challenge

Ensuring accurate transfer of data without loss or corruption can be highly complex because legacy systems often contain vast amounts of critical data.

System incompatibility poses a significant challenge as older systems may not easily communicate with modern insurance software solutions.

Traditional systems lack consistent data models, resulting in an issue for both technical architecture and business rules.

Common Obstacles

Legacy systems often suffer from poor documentation, as they were developed and modified over decades by various internal teams or defunct vendors. They also contain poor-quality data, requiring generations of users to adapt or manipulate the system to meet evolving data requirements.

Security and disaster recovery (DR) capabilities are often inadequate due to limited focus and underfunding.

Resistance to change among insurance professionals accustomed to legacy systems can slow the adaptation of new technologies.

Info-Tech's Approach

Evaluate workload suitability for the cloud, selecting the optimal migration or non-migration path based on the value of cloud characteristics.

Identify risks associated with workloads' cloud suitability and plan mitigations.

Develop a roadmap of initiatives for workload actions and risk mitigation.

Define a cloud vision to share with stakeholders, outlining the benefits and risks associated with cloud adoption.

Info-Tech Insight

Base your migration decisions on the specific characteristics of the cloud; if your only justification is to move your workload out of the data center, it's time to reconsider. A successful migration requires proactively addressing potential risks in the planning stages.

Cloud offers benefits that are attracting insurers

Cloud can enhance business performance in multiple ways:

Key Insights:

McKinsey says cloud migration can curb IT spending by about 30%.

PwC claims that 78% of insurance companies have adopted the cloud or moved some part of their business to the cloud resulting in simplifying the dialogue between companies and end consumers.

Integrating legacy processes into new cloud-based systems is difficult

Legacy data is typically unstructured, which makes accurate cloud migration more complex, requiring specialized data parsing and reformatting to retain data integrity.

Most legacy systems are incompatible with cloud architectures due to outdated programming languages, frameworks, or infrastructure dependencies, requiring extensive reengineering efforts for a smooth migration.

Insurance professionals typically express reluctance toward adopting new technology, citing concerns about complexity, disruption in workflows, and lack of confidence in new systems.

Legacy systems complicate migration

Legacy systems, due to their long history, often exhibit several challenging characteristics that complicate migration to modern platforms.

Poor documentation is a primary challenge in legacy system migration projects. Most IT leaders cite incomplete or missing documentation as a significant roadblock when managing legacy systems.

Lack of a standardized data model is often seen in legacy systems. Inconsistent data models, often a result of legacy system architecture, hinder effective data integration and create challenges in applying consistent business rules across systems.

Older systems lack the data validation and governance mechanisms necessary for modern standards, resulting in data quality issues for legacy systems.

Insurers face challenges for cloud adoption

1. CapEx vs. OpEx: Insurance companies tend to use capital for infrastructure investments, whereas operational expenses mainly drive the adoption of cloud computing. This can make it difficult for insurance companies to justify switching to cloud-based solutions.
2. Regulatory requirements: Most insurance companies are currently not fully compliant with regulatory requirements. Implementing cloud-based solutions could offer significant value in addressing this compliance gap.
3. Legacy infrastructure: Insurance companies manage critical infrastructure, making any disruption potentially severe. Additionally, many insurers operate with extensive legacy infrastructure that can be challenging to integrate into modern cloud systems, necessitating robust disaster recovery and business continuity planning, often requiring specialized cloud solutions.
4. Operational complexity: With multiple stakeholders, different assets, and complex procedures, the insurance sector is highly complex. Consequently, developing and implementing cloud solutions that meet the needs of this sector may be difficult.
5. Data sensitivity: Insurance companies manage sensitive customer data such as personal health and financial information. As a result, they must comply with rigorous data security standards, which may affect their decision to adopt cloud computing. Ensure there is no reduction of data security.

Find a solution for CapEx vs. OpEx

1. CapEx vs. OpEx

The movement to cloud computing can bring efficiency, scalability, enhanced analytics, and improved customer service. This movement usually changes the accounting treatment from a traditional CapEx model to more of an OpEx model, as cloud typically is a pay-as-you-go event once established.

As the benefits of using cloud are becoming increasingly clear and are almost a requirement for companies to innovate, the insurance sector needs to find a way to make cloud adoption more palatable.

Info-Tech Insight

The project of migrating to the cloud and its expenses are typically available for CapEx. Ongoing strategies for PaaS, IaaS, and SaaS can be CapEx if prepaid or can be OpEx if positioned as pay as you go. Please confirm with your CFO for these strategies. This can help with traditional financial models and enable the use and benefits of cloud.

Starting points for cloud adoption

Understand regulatory requirements

Start with understanding the regulatory requirements and constraints governing the industry on what can be considered CapEx vs. OpEx.

Strategic financial planning

Identify the costs associated with cloud adoption, including the upfront costs associated with CapEx and ongoing costs that add to the OpEx.

Negotiate with vendors

Most cloud vendors offer payment plans that can be paid upfront even three years ahead of time. These deals can be structured in a way where most costs can be associated with CapEx. This is not only useful in meeting the financial needs of the industry but is also considered a best practice for cloud adoption and can help drive down costs.

Implement cloud cost management

While OpEx may not be completely unavoidable on cloud (especially in SaaS), cost management practices such as monitoring, metrics, and usage optimizations can be implemented with the help of a cloud center of excellence that can ultimately help drive down the OpEx costs.

Implement tactics to navigate system migration challenges

Info-Tech Insight

A successful migration strategy balances innovation with risk management, ensuring regulatory compliance, safeguarding sensitive data, and simplifying operational complexity to drive long-term efficiency and resilience in the cloud.

GEICO's Cloud Repatriation

The success of cloud migration lies in thorough evaluation and planning.

Organizations that do not assess workload suitability, business objectives, and long-term goals to avoid pitfalls result in costly repatriation efforts.

INDUSTRY Insurance

SOURCE The Stack, 2024

Challenge

Transitioning approximately 80% of its workloads to the public cloud, GEICO engaged with multiple cloud providers.

Leading to annual expenditures exceeding $300 million, this extensive cloud adoption saw half allocated to a single provider.

Facing escalating costs and encountering limitations in customizing software to meet its specific requirements, GEICO continued to deal with challenges despite the substantial investment.

The dispersed cloud environment introduced complexities undermining the anticipated benefits of cloud migration.

Solution

Initiating a comprehensive infrastructure overhaul, GEICO opted to repatriate workloads from the public cloud back to on-premises platforms.

Embracing open-source solutions, the company deployed an OpenStack private cloud and leveraged Kubernetes for container orchestration.

Aiming to regain control over IT operations, reduce costs, and enhance the ability to tailor software solutions to GEICO's unique business needs, this strategic shift was implemented.

Results

Achieving substantial cost savings by consolidating workloads on-premises and utilizing open-source technologies, the company effectively addressed the financial burdens associated with extensive public cloud usage.

Facilitating greater customization and operational efficiency, the enhanced control over IT infrastructure aligned technology capabilities more closely with business objectives.

This strategic realignment underscores the importance of evaluating cloud strategies to ensure they meet organizational goals and deliver expected value.

Why cloud vision?

Due to a variety of industry-specific factors such as legacy systems, regulatory requirements, critical infrastructure, and operating complexity, cloud adoption can be difficult for insurance companies.

• Use the Define Your Cloud Vision for the Insurance Industry blueprint to overcome these challenges and exploit the benefits of cloud. By solving key issues such as which part of your organization should move to the cloud, what type of cloud solution would best suit your needs, and how risks and obstacles must be considered during migration, the blueprint provides a comprehensive set of tools that will assist you in developing an overall transparent and contextual cloud strategy.
• Ensure that your cloud strategy is aligned with the overarching organizational objectives and goals, while ensuring a well-planned and well-implemented migration without affecting operations in any way.
• Use the Cloud Vision for the Insurance Industry Workbook to evaluate the organization's readiness for cloud adoption and to determine specific needs for the project.

Use key metrics to measure transition success

Key Insurance Metrics for Cloud Migration

Availability

• Uptime percentage of cloud services.
• Impact on customer claims processing during downtime.

Flexibility

• Adaptability to changing business needs.
• Support for hybrid and multi-cloud environments to optimize performance.

Data Security & Compliance

• Compliance with industry regulations (e.g. GDPR, HIPAA, PCI).
• Encryption levels, access controls, and audit trails.

Scalability

• Ability to handle increases in claims processing during peak seasons.
• Elasticity of cloud resources to meet changing demand.

Latency

• Speed of data retrieval and processing for claim approvals.
• Time-to-market for new products (e.g. policy issuance).

Disaster Recovery

• Backup frequency and recovery time objectives (RTO).
• Cloud's capability to meet insurance disaster recovery requirements.

Runtime Cost

• Total cost of cloud storage.
• Cost per claim processed.
• Comparing traditional vs. cloud-based costs.

Info-Tech's approach

Info-Tech Insight

Base your migration decisions on the specific characteristics of the cloud; if your only justification is to move your workload out of the data center, it's time to reconsider. A successful migration requires proactively addressing potential risks in the planning stages.

Start with a shared understanding of cloud

Stakeholders must agree on overall goals and what "cloud" means.

The cloud encompasses a range of services, from scalable infrastructure as a service (IaaS) to customer-centric software as a service (SaaS).

Each of these solutions addresses different business challenges, and selecting the right approach depends on a clear, shared understanding of the organization's needs and priorities.

In the insurance industry, the cloud's role encompasses capabilities like:

• Policy Management Systems: Cloud-based platforms that streamline underwriting and policy issuance.
• Claims Processing Solutions: SaaS tools for automating claims workflows and improving efficiency.
• Customer Engagement Tools: Applications for personalizing communication and enhancing client interactions.

This phase proceeds into a four-step approach to achieve a shared understanding

Step 1: Define Corporate Goals and Drivers
Stakeholders must first align on the overarching goals driving cloud adoption.

Step 2: Understand the Cloud's Unique Characteristics
Stakeholders must recognize how the cloud's inherent features can address specific challenges in the insurance space.

Step 3: Assess the Current State
A thorough review of the existing IT environment is essential to identify gaps and opportunities.

Step 4: Identify Workloads for Cloud Migration
Participants should pinpoint specific workloads that are prime candidates for the cloud.

Info-Tech Insight

It's critical for stakeholders to differentiate between public, private, and hybrid cloud models. Without alignment on these distinctions, initiatives such as a "cloud-first" strategy, risk becoming fragmented, with varying interpretations undermining cohesive planning and execution.

A workload-first approach will allow you to take full advantage of the cloud's strengths

A workload-first approach will allow you to take full advantage of the cloud's strengths

Cloud Characteristics

• Under all but the most exceptional circumstances, good cloud strategies will incorporate different service models. Very few organizations are "IaaS shops" or "SaaS shops," even if they lean heavily in one direction.
• These different service models (including non-cloud options like on-premises infrastructure) each have different strengths. Part of your cloud strategy should involve determining which of the services makes the most sense for you.

Workload rationalization provides insight

Info-Tech Insight

Before diving into cloud migration, conduct an Application/Workload Rationalization (AppRat). By identifying low-value workloads upfront, organizations can avoid wasting resources migrating systems that do not contribute to their strategic goals. This ensures the migration effort is focused on high-impact, business-critical workloads, leading to optimized cloud performance, reduced costs, and a more streamlined IT environment.

Cloud migration strategies reflect organizational capabilities

Amazon introduced a framework for understanding cloud migration strategies. The framework presented here is slightly modified – including a "relocate" component rather than a "retire" component – but otherwise hews close to the standard.

In the graphic to the right, the migration paths within the red box lead to the adoption of the cloud whereas the ones outside of the red box essentially represent "non-cloud" migration paths.

Migration paths

Retain (Revisit) – Maintain

• Keep the application in its current form, at least for now. This doesn't preclude revisiting it in the future.

Relocate

• Move the workload between datacenters or to a hosted software/colocation provider.

Choosing the right support model helps determine the perfect fit for cloud workloads

Support models by characteristic

Example: A highly technical, short-term project with significant flexibility requirements might be a good fit for an expensive consultant, whereas post-implementation maintenance of a cloud email system requires relatively little specialization and flexibility and would therefore be a better fit for internal management.

• IT services, including cloud services, can be delivered and managed in multiple ways depending on the nature of the workload and the organization's intended path forward.
• Three high-level options are presented here and may be more or less valuable based on the duration of the expected engagement with the service (temporary or permanent), the skills specialization required, and the flexibility necessary to complete the job.

Info-Tech Insight

There is no universally applicable rule here, but there are some workloads that are generally a good fit for the cloud and others that are not as effective, with that fit being conditional on the appropriate support model being employed.

Cloud strategies need to address 14 key areas

No two cloud strategies are exactly alike. Address your risks and roadblocks.

A key step in defining your cloud vision is an assessment of these strategy components. Lower maturity does not preclude an aggressive cloud strategy, but it does indicate that higher effort will be required to make the transition.

Defining your cloud archetype

The cloud archetype is a key component of cloud vision

Once you understand the value of the cloud, your workload's general suitability for cloud, and your proposed risks and mitigations, the next step is to define your cloud archetype.

Your organization's cloud archetype is the strategic posture that IT adopts to best support the organization's goals. Info-Tech's model recognizes seven archetypes, divided into three high-level archetypes.

After consultation with your stakeholders, and based on the results of the suitability and risk assessment activities, define your archetype. The archetype feeds into the overall cloud vision and provides simple insight into the cloud future state for all stakeholders.

The cloud vision itself is captured in a "vision statement" – a short summary of the overall approach that includes the overall cloud archetype.