Cloud Technology for Insurers-Part 1
What is the Cloud?
Cloud technology is on the rise and displaces classical in-house datacenters in various industries. Yet insurance companies are still rather hesitant with regards to this trend. This article series will discuss the different challenges related to the use of the cloud and how insurers can successfully tackle them to tap into the large potential of this technology.
In the first part of our article series, we describe the history and the basic concepts of cloud technology to lay the foundation for subsequent discussions.
History of Cloud
At the beginning of the last decade, Amazon was on its way to become one of the largest online mail-order companies in the world. But the company realized that it had to be better at decoupling application components to remain innovative in the long run. Therefore, Jeff Bezos instructed his IT development teams to only develop IT services that communicate exclusively through well-defined service interfaces. At the same time, the company started to build its IT infrastructure as virtualized components. Hence, the availability of IT infrastructure no longer presented a bottleneck for the development speed as application developers could set up these components by means of self-service. During the implementation, Amazon realized the vast market potential of this novel approach and decided to offer it to external users for a fee.
Since Amazon introduced its first cloud services to the market in 2006, the cloud has been seeing unparalleled success. Other large IT companies such as Microsoft, Google and IBM have followed with their own corresponding offers. While new companies have popped up with business models that were not even conceivable without the cloud, many conventional companies have also migrated part of their application landscape to the cloud. However, compared with other industries, financial service providers have so far been rather reluctant to follow. Nevertheless, a clear trend can be observed as numerous banks (e.g. Capital One, J.P. Morgan Chase, DBS Bank, Oak North, Bankinter, or ME Bank) and insurance companies (e.g. Oscar Health, Pacific Life Insurance, Exeter Family Friendly, AON, Radian, or Smatis) are now increasingly using cloud services.
Characteristics of Cloud Services
There often is a misconception of what a cloud is, e.g. scenarios are referred to as «cloud» that are in fact not. Therefore, the defining properties of cloud services are briefly explained in the following:
Cloud provides infrastructure and software as services that are obtained and administered by users in a self-service approach. Self-service means that a developer does not need to have long conversations with IT infrastructure staff, but can deploy new IT infrastructure resources by the click of a button.
Cloud services are elastic, that is they can be scaled up or down very quickly (within minutes) to react to changes in demand. For example, if an increase in load on an application is observed, the underlying IT infrastructure resources can be multiplied accordingly.
Cloud services share a pool of resources in the form of hardware and operating staff. This resource pooling in combination with a high degree of automation allows large economies of scale to be realized.
Cloud usage is metered in high resolution. The corresponding metrics allow the realization of different cost models, including the popular pay as you go. The clear advantage of the latter is that cloud users only pay for the time they have been effectively using the resources without base fees or upfront costs charged.
Broad Network Access
Cloud services are provided and used over the internet leveraging the traditional identifiers, formats, protocols, and principles. This means that typically, no special «line» is needed to connect to the cloud and that the services can be leveraged by any kind of internet-connected devices and applications.
Just like many years ago, the emerging electrical power grid allowed factories to get rid of their own power stations, cloud services are in the process of making proprietary datacenters unnecessary.
In the next article of our series, we will introduce the different cloud service models and the advantages of the cloud over classical in-house datacenters. Furthermore, we will explain how cloud providers and cloud users share the responsibility for cloud security.