Insurance companies are currently confronted with a significant challenge: Transitioning to cloud technology is crucial for many of them to maintain a competitive edge in an increasingly dynamic market. Conversely, apprehensions regarding the potential loss of control and data security are hindering their ability to fully leverage the benefits offered by the cloud. What obstacles do insurance companies encounter on their journey toward digital sovereignty in the cloud, and what solutions might be available?
Evolving demands of customers, the emergence of innovative digital business models, and the necessity for seamless collaboration within ecosystems necessitate the adoption of contemporary cloud environments in the insurance industry. Although traditional insurance companies may exhibit reluctance at times due to their long-standing legacy systems, InsurTechs and newer insurance enterprises, unencumbered by such legacy IT, are increasingly adopting cloud-exclusive strategies.
The insurance industry is undergoing an inevitable transformation towards cloud technology
The process of modernizing legacy applications and transitioning them to the cloud represents a significant undertaking. A recent study conducted by msg advisors and Lünendonk & Hossenfelder indicates that 39 percent of insurance companies believe that on-premise solutions will continue to be the primary deployment model for the foreseeable future.
However, the digital transformation within the insurance industry is undeniably advancing, albeit at a more gradual rate compared to other industries: Over half of the companies surveyed are adopting a cloud-too strategy, and 38 percent of insurers plan to increase their investments in migrating applications to the cloud in the next three years.
Four key elements of cloud sovereignty
A primary factor contributing to the slow adoption of cloud technology within the insurance industry is the apprehension companies have regarding the potential loss of control in the cloud environment. This concern extends beyond mere information security and data protection; it encompasses all elements that affect the growth of their business, including operational autonomy and management of costs. The study identifies four key areas that are of particular significance:
In a data-driven sector like the insurance industry, having sovereign and unrestricted control over data is a crucial requirement for transitioning business operations to the cloud. 98 percent of the insurance companies surveyed currently perceive the potential outflow of data as a significant barrier to adopting cloud technology.
Against this background, it is imperative for companies and cloud providers to develop solutions that guarantee data sovereignty across the board. Private clouds facilitate the storage and processing of data within a specified legal jurisdiction, which is contributing to their growing significance. Furthermore, an increasing number of organizations are turning to external encryption solutions to meet regulatory requirements.
Regulatory requirements specific to the industry, including the amendments to VAIT or DORA impose further obligations regarding the storage and processing of insurance data in the cloud. To adequately meet these demands, insurance companies ought to conduct a thorough risk assessment of their service providers. It is recommended to enforce stringent security measures and to set up oversight of external partners.
Regulatory obligations nevertheless serve as a catalyst for increased adoption of cloud technologies: For instance, initiatives aimed at safeguarding against cyber threats, as mandated by the NIS2 directive, can be implemented more effectively in collaboration with cloud service providers compared to conventional on-premise systems.
To attain operational sovereignty in the cloud, it is crucial to have the capability to migrate applications to alternative IT infrastructures at any moment, including internal systems. In this context, 91 percent of the insurance companies surveyed fear restrictions due to vendor lock-ins, i.e. dependence on one cloud provider. Hybrid multi-cloud strategies can assist companies in mitigating this risk by allocating data among various providers. Furthermore, it is essential for companies to establish an exit strategy at the outset of their plans to utilize cloud storage for their data. This outlines the process for a regulated switch of a SaaS, PaaS, or IaaS provider, detailing how data can be transferred seamlessly.
Alongside ensuring secure and dependable operations, sovereignty also encompasses management of costs. Insurance companies frequently lack awareness of the billing metrics utilized by providers, and the pricing frameworks associated with cloud services can vary significantly from those found in on-premise environments. Insurers find it challenging to effectively incorporate these factors into conventional cost controlling models, complicating their ability to plan costs. For example, 88 percent of respondents indicated that the return on investment (ROI) associated with the cloud remains ambiguous, thereby hindering accurate financial calculations. Consequently, FinOps is gaining significance as a comprehensive framework for effectively managing cloud costs.
The Cloud Center of Excellence serves as a facilitator for assured cloud utilization
To achieve a successful and assured cloud transformation within the insurance industry, it is essential to consider four key aspects during the implementation process. Alongside a well-developed cloud strategy that addresses the specific needs of the industry and the individual company, it is necessary to implement extensive technical, organizational, and cultural adjustments.
A Cloud Center of Excellence (CCoE) can assist companies in navigating this complex process effectively. This center of competence comprises an interdisciplinary team of IT specialists alongside managers and personnel from other pertinent departments, including Controlling and Compliance. It recognizes established processes and methodologies, providing assistance to all employees within the company when challenges arise. Additionally, it facilitates the implementation of new structures or operational methods. Establishing such a CCoE is a crucial strategy for enhancing the efficiency of cloud transformation and fostering long-term cloud sovereignty.
Are you interested in utilizing cloud technology in the future to enhance your IT infrastructure and streamline your business processes?
msg advisors are your reliable partner in the cloud transformation of your insurance company. Leveraging our specialized knowledge in the industry, advanced technological capabilities, and extensive experience in organizational development, we are equipped to assist you throughout the entire transformation journey, ensuring that your transition to the cloud is both efficient and successful. Find out about our consulting services now:
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