Rates of cloud deployment are rapidly increasing as businesses have prioritized digital transformation processes throughout the pandemic.
Naturally, some sectors have been slower in their transition towards the cloud than others, with concerns over security, reliability and cost cited as the most common reasons. However, today, the majority of sectors in this global economy have come to realize the benefits of the cloud and are now rapidly moving away from their traditional on-site infrastructure to their virtual counterpart.
One sector which has been relatively slow in adopting the cloud, however, has been finance – particularly the insurance industry.
Why is the insurance sector lagging behind?
It is safe to say the insurance sector is years behind its financial peers, with a significant reliance on outdated legacy and on-site infrastructure in day-to-day dealings. It is important to note that while this is the case, insurance companies are adopting the cloud. They are just significantly behind others in comparison. So while the insurance sector has opened the door to the cloud, much can be said about why it is lagging.
Following the wider trend within the financial sector, the insurance industry has been hindered by doubts about the data security capabilities of the cloud in comparison to the traditional on-premise infrastructure which has dominated the industry for decades. This fear has been predominantly fueled by a significant number of CIOs and CTOs who still have significant investments in on-premise infrastructure as well those who previously refused to believe in the capabilities of the cloud, based on the misconception that if something is in the cloud, it is available to everyone.
What is driving the change to the cloud?
These misconceptions that were holding the insurance sector back for years have now been widely regarded as false, with the creation of private and hybrid cloud environments fuelling the shift.
It is accepted that cloud technology is already changing the insurance sector, as companies start to enjoy the benefits of a more cost-effective method of operating their IT infrastructure while being able to serve a larger customer base than before. As the benefits of the cloud have become more clear in recent years, increased cloud adoption is being driven by a select group of challenges the insurance sector is facing:
- Cost pressures: Pressured from recent events, insurance companies have been driven by the need for increased profitability in a period of reduced premiums, while trying to increase their access to the market in an attempt to deal with competition. With such pressures, the insurance sector has recognised that these challenges can be addressed through cloud infrastructure, which allows them to boost financial flexibility, reduce costs of IT infrastructure and cut operation costs.
- Need for agile infrastructure: Due to an ever-changing marketplace, insurance firms are recognising the need to be increasingly more flexible to meet the constant shifts in the market as well as the new emerging opportunities and challenges that are constantly being presented.
- Customer demand: The pandemic has shaped the way businesses and customers interact with each other for the foreseeable future. With a move away from face-to-face customer service, businesses are relying on their digital modes of communication more than ever. In line with this change of focus in communication, there has been a rise in customers expecting products, services and an overall customer experience that are ever more suited and responsive to their needs.
What benefits can the insurance sector gain from the cloud?
As we know, the adoption of cloud computing is in its relevant infancy in the insurance sector. However, the progress that has been made so far is starting to advance the industry into a new age, with the cloud-based potential growing every day. But how can the cloud benefit the insurance sector?
- Reduce IT costs: It is widely accepted that transitioning away from on-premise infrastructure to a cloud-based infrastructure is significantly more cost-effective. Running on-premise IT infrastructure requires an extensive amount of expense to power, maintain and update systems, whereas shifting to the cloud significantly reduces your day-to-day running costs. Further to this, it is significantly cheaper to scale a cloud than on-premise infrastructure.
- Scalability: There is only so much traffic or demand an on-premise infrastructure can take. Through using the cloud, businesses can handle peaks in demand more easily as they can scale their operations specifically to meet demand at certain times.
- Digital transformation: Cloud hosting allows for a smoother transition towards service-orientated operations and innovation in systems.
- Integration: Depending on the chosen mode of cloud operation, the cloud can support increased integration of relevant third-party systems to aid the running of a business.
The future of the cloud
Whilst the uptake of the cloud is increasing, the pace of adoption is up for debate, with several companies still reluctant to move away from their traditional on-premise infrastructure. Although the cloud adoption rate is relatively slow, the popularity of the cloud is slowly increasing as questions of security and reliability are slowly addressed. To speed up the adoption of the cloud within the insurance sector, further education is clearly needed.
