With cloud computing, insurers can most effectively use big data and predictive analytics to personalize insurance offerings, accelerate the underwriting and claims processes, catch fraudsters more easily and reduce their IT spending.
In August 2008, a service outage changed how a streaming service would do business in the future. Netflix had a database corruption incident in one of its private data centers. The issue meant Netflix could not ship DVDs for three days, which translated to millions of dollars in lost revenue. That wasn’t the first time the company had struggled.
As Netflix would reveal years later, its on-premise data center systems were struggling to scale quickly enough to meet demand. Instead of taking the short-term route and fixing only the local data center, Netflix went all out and migrated to an instantly scalable cloud infrastructure. Along with streaming "House of Cards," moving to the cloud was probably one of the best business decisions Netflix has ever made.
Do Insurance Companies Need to Migrate to the Cloud?
Growth-minded insurers should consider why motivated companies like Netflix chose cloud migration over a decade ago.
Dave Hahn, a senior engineer in cloud operations at Netflix, said the company would have had to spend billions of dollars to create world-class data centers in multiple, global locations if it wanted to continue using on-premises systems. Netflix also knew it would suffer future outages in separate data centers if it didn’t move its operations to the cloud.
Future proofing infrastructure and existing business offerings was only half of the issue. The cloud brings with it the potential for new offerings and the ability to optimize the customer’s experience. One of the most profitable benefits of cloud migration is how it supports Netflix’s use of big data, artificial intelligence and machine learning at speed and scale to make personalized program recommendations based on what a person has watched.
How It Works
For insurance companies, a custom cloud setup can help them harvest insightful data on policy holders in real time. This data can help organizations determine an individual’s likely risk and to personalize and price insurance products based on each customer’s behavior. The cloud also supports the collection and analysis of real time data provided by IoT devices, such as black boxes in cars or wearable tech that monitors health and physical activity, to moderate customer behavior and to reduce the risk of a claim and offer reduced premiums.
See also: How to Mitigate Cloud Computing Risks
What Cloud Computing Applications Exist for Insurers?
Cloud computing for the insurance industry comes in several powerful forms.
1. Personalized Insurance Products and Improved Customer Experience
Cloud computing can help businesses harness the power of artificial intelligence (AI) and machine learning (ML). Here are some examples.
- Insurers can collect more data about customers in one place and over a long period. Querying such data would help them understand their customers better for claims and fraud detection.
- A company can run big data analytics against all of its claims’ databases, as well as databases now being shared across multiple organizations, to discover individual patterns or group customers’ behaviors. This big data sharing can accelerate the claims process, enhance the customer experience and greatly increase fraud detection. As early as 2016, Lemonade Insurance stated that its AI chatbot “Jim,” supported by real-time big data analytics, settled a claim within three seconds. Perhaps this is exceptional, but insurance wait times and process duration and costs can be significantly reduced.
- IoT devices can be linked to cloud databases and machine learning applications to collect and analyze customer information in real time to encourage positive behavior and reduce risk/claims.
- Insurers can also employ data mining techniques to better predict customer profitability and policy risk. This would inform the company about whether it needed to raise its policy pricing or offer new products for specific individuals or groups.
Cloud computing is the foundation for boosting customer attraction/retention, improving fraud mitigation and increasing ROI on insurance IT spending.
2. Room to Grow at Your Own Pace
One significant benefit cloud computing has over on-premises systems is that insurers can scale operations and infrastructure on-demand to adjust to market changes, including accommodating spikes in demand for products and services.
Conversely, a business can scale down to save costs when capacity is not required. For example, an insurer can limit the amount of bandwidth used on off-peak days, months or seasons; they can even stand up and tear down test environments automatically.
3. Remote Agents
The insurance industry had distributed field teams way before the pandemic forced other sectors to consider working remotely. However, cybersecurity attacks have increased 800% since the start of the COVID-19 pandemic. Most cyber threats target employees who are working outside their company’s premises via the internet.
Some 36% of participants in a PWC study said they had not conducted risk assessments on their connected devices. About half of the ones who did said they did not know how to address the issues they uncovered. Insurers using legacy applications may be risking their valuable data and reputations.
Using a cloud platform maximizes security for remote insurance workers, allowing them to focus on signing up more clients. Insurers can worry less about data breaches, adverse publicity and potential lawsuits that may damage their brand.
See also: Cloud Takes a Starring Role
4. Reduced IT Spending and Operational Costs
Moving to the cloud greatly reduces the need to buy and maintain physical IT components such as networking equipment and servers. Migrating the company infrastructure from on premise will also remove significant maintenance and upgrade effort and costs.
Like Netflix, an insurer no longer has to spend a fortune on building and maintaining world-class data centers. It only needs to migrate its data and upgrade some of its core insurance software solutions to be able to capitalize on the competitive advantages of working in a cloud environment.
