Successful customer-focused insurance business models require embracing the ubiquity of cloud innovations and leveraging the power of cloud-native design for enterprise applications
Insurers are finally embracing the cloud with conviction. A key reason is that it is abundantly clear that operating in the cloud is an essential part of an effective digital strategy. Cloud platforms and services support a host of digital innovations vital to the next-generation of insurance. Not as clearly understood but no less compelling a reason is the growing realization by insurers that they will never fully benefit from their investments in more customer-focused business models if they don’t design their enterprise applications to take full advantage of the cloud.
Cloud computing is a vital vehicle for digital innovation. Cloud platforms and services are supporting a host of digital innovations that promise to dramatically change the insurance industry. Digital channels, self-driving cars, blockchain, wearables and advanced analytics systems, to name a few, all depend on cloud technology.
Looking forward, the very ubiquity of cloud, cloud tools and innovation is the foundation for the emerging B2B and B2C ecosystems that will radically change insurance distribution. These ecosystems are networks forming around fundamental human and organizational needs, such as health, housing, mobility and wealth protection. Insurers need a cloud-enabled business platform to participate in the new ecosystems.
A cloud-enabled insurance business platform: a changing entity
What is a cloud-enabled business platform? It is one thing to have your enterprise applications running in the cloud, and claim they are cloud-enabled, and another thing to have your operations being supported by applications built on cloud-native services.
A large number of insurers still rely on decades-old mainframe systems and legacy applications. Some have been able to take their legacy core applications and with a “lift and shift” approach host them in cloud environment. The results of this process are mixed. While real saving can be gained in reduced infrastructure cost, the applications are their same old selves. What’s more, converting old code to run in the cloud can be complex and expensive, making it one of the biggest hurdles for modernization. To take full advantage of the cloud, insurers will need software designed for it: a cloud-native architecture.
Without adopting a cloud native architecture, insurers will likely never fully benefit from their gung-ho investments in building more customer-focused business models. Many will struggle to compete against or leverage the market agility and penetration of digital-natives like Amazon, Google, Facebook and Alibaba to distribute insurance in the emerging ecosystems. They may also find themselves out-flanked by “cloud-born” insurance start-ups.
How does cloud-native make insurers more agile?
A business platform of cloud-native apps, with cloud infrastructure and operating systems underlies the ability of companies like Netflix and Facebook to quickly get new capabilities into the market, hundreds every day. Those benefits are in sight for insurers.
What we are talking about when we say “cloud-native” is the act of designing applications with an architecture that can “natively” take advantage of the cloud. The central cast is microservices and reactive-based software design coupled with a DevOps and continuous integration/continuous deployment (CI/CD) approach to delivering applications.
The lead actor is microservices, a software design approach that focuses on “smaller is better.” By breaking core business capabilities – such as quote, issue, or claim submission - down into smaller pieces, microservices make it easier to fine tune the larger capability by replacing or upgrading only the relevant microservice. Critically, microservices architecture mirrors the structure of the cloud: apps are being built as a distributed collection of services, which pairs up perfectly with the distributed nature of the cloud.
Another advantage? Microservices are reusable, meaning, for example, the same bill generation module can be used across lines of business, and even outside of insurance.
In tandem, the cloud-powered CI/CD approach to integration and testing gets new microservice-based capabilities into production in a more agile fashion.
The real value is real-time customer interactions
Why so important? The answer is that the holy grail of customer-centered business models is support for insight-driven, real-time customer and user engagement.
The separate footprint of operational and analytical systems creates a lag that hampers the ability to quickly gain advantage from analytical insights. Cloud-native architectures and new serverless cloud services can remove that gap, leading to integrated solutions with no constraints on performance or data size that could support the application of insights at point of sale or point of interaction. This is where the combination of new digital channels; event processing to include serverless technologies; and advanced analytics with AI/ML can enable the agility required for real-time interactions. With real-time insight, for example, an insurer can immediately identify a fraudulent claim, an imminent risk, or a timely product or a service to offer to a policyholder.
To play on the main stage, in full view of their customers, insurers will need digital strategies that fully embrace the power and universality of the cloud.
Mike Dwyer is CTO and executive vice president, Engineering at EIS Group. This article was first published in The Record magazine, Summer 2018 issue.