Five design principles of cloud transformation in insurance

Many insurers have traditionally been reluctant to move their operations to the cloud, citing security or regulatory concerns. But the pandemic has forced change both on the side of the insurers (who had to accelerate digital transformation programmes in order to operate), and the large-scale cloud providers (who had to address any inherent security or compliance risks).

Data from Synergy Research Group found that the pandemic caused a boost of $1.5 billion to the wider cloud infrastructure, software and platform-as-a-service sectors in Q3 2020. Q4 figures were even more impressive, with spending topping $37 billion, which was $4bn higher than Q3 (and 35% higher than Q4 2019).

The shift to a secure, compliant public cloud

We’re seeing a real shift towards public cloud by insurers in the last year. Providers have listened to and addressed any residual security or regulatory concerns that insurers may have had in the past, and now offer highly secure solutions that have been built to fit a regulatory framework. The attraction for insurers is the elasticity of cloud solutions (you only pay for what you use in a consumption-based model), which means the ability to scale without a significant upfront investment. It effectively allows insurers to move from a CapEx model to an OpEx model.
The innovators in insurance are moving away from their traditional world of data centres, on-site infrastructure and legacy systems. The pandemic accelerated this process — and those who’d already started their cloud transformation had a clear and obvious advantage.

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Divesture and streamlining of physical assets

This transformation does raise an issue for insurers: what to do with the existing infrastructure, hardware and physical assets? This is leading to consolidation as part of a strategic migration programme that is done over time, as organisations move from an on-premises world to a cloud one, divesting physical assets in favour of the flexibility of cloud. The timing is critical, and this divesture should be done as part of a clearly planned strategic programme.
There are five technical design principles that should drive this transformation programme.

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Five design principles of cloud transformation

There are five guiding principles that will inform your strategic move to the cloud.

1. Customer-first by design. Customer experience must be at the heart of everything the business does. What this usually means is keeping things as simple as possible. Don’t introduce complexity where it’s not needed. Before making changes to systems and platforms, ask if it will help your business stand out for providing an exceptional customer experience. Is it what customers want and need? Are you using data effectively to create the products that your customers need?

2. Streamline your portfolio. Look at the entire customer journey. What is the most efficient way to deliver what the customer needs? Some insurers end up with a lot of unnecessary or unwanted steps and processes that customers have to wade through to complete what should be (at least on the face of it) a simple task. For example, a complicated portfolio of products with a low market potential is both unattractive to consumers and require too much effort to understand. By eliminating unnecessary products, insurers can streamline their offerings and make the customer journey as easy as possible, increasing the chance of that customer reaching the end of their journey, rather than going somewhere else. The insurer also has more resources to develop products that customers want.

3. Analyse legacy issues, and the need to standardise. Design new products to relieve the strain on departments most affected by legacy issues (mainly cover, pricing and administration), and include automation as a strategic play here. Standardisation can be the biggest headache for insurers – it is a prerequisite for automation, and automation is a lever for optimising your cloud solutions. Create product and process-related prerequisites to convert all tariffs to the most recent tariff generation and the latest version of the general terms and conditions as quickly as possible. Design the new processes in a way that means they can be modified without having to touch product models and backend systems.

4. Strengthen pricing expertise. By standardising technology and processes, insurers can create an improved understanding of production costs, leading to more accurate forms of productivity control and pricing. The framework structure also standardises the discount model for all business fields and sales channels, including discounts (set via a fixed parameter). Deviation from these standards should only be allowed if there’s a measurable benefit to the business.

5. Create comprehensive offers. By becoming a digital-first business, insurers gain the ability to form a deeper connection with their customers. They go from having just a few touchpoints, to a more sustained level of interaction. Insurers can use data generated from connected devices to tailor offers to customers — creating products that are both relevant and timely, and bringing customers closer to their data (and directly benefiting from it).

A successful cloud transformation programme is part of a broader strategy to transform the business, creating scalable, streamlined products and systems that can be delivered efficiently and quickly, in the way that customers want. The pandemic has changed both the perception and the reality of public cloud solutions to offer a real alternative to on-premises solutions and hardware, and even to private cloud equivalents. It is the future, and we’re seeing more and more insurers embracing its benefits.

Written by Johanna Von Geyr, partner and EMEA lead banking, financial services and insurance at ISG

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