The great switch: cloud-native platforms in insurance

The business case against legacy technology is fairly plain to see. Not only do legacy systems hold insurers back from offering the type of agile, dynamic customer experience that insureds expect, it is also exorbitantly expensive to maintain. For those that remain on legacy technology, it is not uncommon for insurers to spend up to 70-80% of their IT budget on continually maintaining it, with the cost of upgrading an entire organisation from one version to another sometimes reaching seven figures.

Clearly, cloud native technology has the edge here – both in the ease of keeping systems updated, but on price too. But what does adoption look like and how is cloud migration working in practice to transform insurance organisations?

What challenges do insurers face?

In part, this was accelerated by the COVID-19 pandemic, as Gartner Senior Principal Analyst Brandon Medford explains: “Organisations are advancing their timelines on digital business initiatives and moving rapidly to the cloud in an effort to modernise environments, improve system reliability, support hybrid work models and address other new realities compelled by the pandemic.”

Daniel Cole, Senior Managing Director for Financial Services at digital transformation consultancy Publicis Sapient, tells InsurTech Magazine: “Legacy platforms are inherently slow and costly to change and it’s becoming increasingly difficult to build data and digital-enabled propositions. The nature of legacy platform development has historically meant customer, product and risk data is siloed and, whilst efforts have been made to patch over the challenges to improve processing and insight, quite often this has led to increasingly fragile and ill-understood solutions, exacerbating the speed and cost of change.

“In personal lines, digital-first propositions require data and decisioning to be at the core, enabled by continuously optimised digital journeys and flexible underlying products and services. Much of this is difficult to achieve through legacy technology – or indeed the platforms from the past 10 or 15 years that are becoming the new legacy.

“In commercial lines – particularly larger risks, and corporate and specialty – the underwriting journey generally lacks support from the legacy platforms in place today, as the dependence on data and insight has grown over time. The ability to effectively ingest and triage the data required for underwriting is again too slow and costly and much is done outside of (or around) legacy solutions, often limiting the insight that can be drawn, or detracting underwriters from where their time can be best spent.”

How can cloud platforms help insurers?

Cloud-native platforms bring a number of key benefits that make them decisively attractive to insurance organisations: they are often cost-effective, allow for quicker deployment and scalability, offer advantages over risk management and data access, and they also make it simpler for insurers to launch new products and services or customise their existing products and services to specific customer segments. All of this, in one form or another, will manifest in a better experience for the insured.

Publicis Sapient’s Daniel Cole continues: “Cloud native platforms, together with well-defined architectures and the right tools and ways of working, have the potential to help insurers move quicker and cheaper whilst providing operationally resilient, scalable and secure solutions, so long as they are used in the right way.

“The insurance industry cloud transition started through infrastructure and data migration, as in many other industries, but is gradually transitioning to the core platforms for data centric customer and product development. The development of new cloud-native insurance platforms, coupled with the plethora of digital and data platforms for the cloud, is gradually unlocking the potential – but there is still a long way to go.”

What’s the future of the cloud in insurance?

Last year, EY surveyed the CIOs, CTOs and cloud strategy leads at more than 70 European insurers to gauge their approach to cloud migration – both now and for the future. At that time, it found that half of respondents had migrated less than 10% of their operations onto the public cloud with only 7% of insurers migrating more than 90%. This suggests that, even with the progress that will inevitably have come during the pandemic, there may still be an adoption gap among insurers in relation to cloud technology.

Summarising the findings of the survey, EY’s EMEIA Financial Services Insurance Technology Leader, Chris Payne, says: “Most insurers want to execute their public cloud roadmap. However, there is also a substantial portion of respondents who want to develop a public cloud strategy as their number one near future initiative. 85% of the insurance companies who have the execution on the public cloud roadmap as one of their top three priorities confirmed to have higher investments in the future. However, there is also a substantial portion of respondents citing the development of a public cloud strategy as their top near-term initiative. Our initial analysis shows that 80% of insurers that only offer life insurance have the execution of public cloud roadmap in their top-three public cloud initiatives, much higher than insurers that operate in other lines of business like non-life and health.

“The second priority – building new, cloud-native applications – requires extensive technical knowledge. Insurers must be prepared to build capabilities in serverless computing and Infrastructure as Code (IaC), for instance, if they are to deliver on these initiatives.

“Almost 40% want to migrate legacy systems to the public cloud, which might require a rethinking of the strategy to benefit from cloud-native services. Large insurers comprise 80% of this group, which is not surprising given how legacy constraints limit digital transformation efforts.”

Payne continues: “The future for those insurers that can master public cloud adoption looks bright. Powered by advanced data analytics and AI, leading insurers can greatly increase their capacity for innovation and accelerate their speed to market with new products and solutions. According to EY NextWave Insurance research, the most successful will be able to position [themselves] as trusted ‘life and wellness concierges’, increasing customer retention by 30%.”