Insurance: in Cloud

Abstract

Cloud computing is considered as a revolution that could change the technological landscape of businesses. Various insurance companies are evaluating the cloud solutions that can help them in achieving operation efficiency and competitive advantage over others. However, as this technology is at a nascent stage, decision of migration to cloud is often risky. Due to lack of clear understanding of costs, benefits and limitations of both the existing Infrastructure and Cloud solutions, the decisions are either based on intuition or trial and error methodology. The purpose of the paper is to detail out a model that will help decision makers in insurance companies to analyze cost-benefit of cloud computing versus own data center. For the benefit of readers new to cloud or insurance, we have included a brief overview of insurance industry and cloud computing. The study then describes a model for calculating the tangible costs of existing infrastructure for the company. We have used a three layer approach for cost calculation base cost estimation by integrating amortized costs of various attributes such as Server and Network, Data pattern based cost estimation and project specific costs estimation. This tangible cost along with the intangible costs and benefits of existing infrastructure is compared with the cost of cloud to device a model for complete costs-benefit analysis that can be used by all insurance companies. We have also illustrated the implementation using base cost estimation model. According to our preliminary analysis, cloud implementation is viable only for small and medium size insurance providers i.e. for the insurance company with annual premium income less than 500,000 lakhs rupees. For larger insurers, evaluation of project level costs (layer #3) may help in deciding whether cloud can be a profitable option. Also, the ROI of individual project migration should be considered for the making this decision instead of migrating the whole IT infrastructure of the company. Also, though the current regulatory requirements in India do not pose any restrictions on cloud adoption, we anticipate that with the popularity of cloud move regulations will be introduced. To understand the possible future regulations and impact, we have analyzed the regulatory requirements in sophisticated economies like US and UK. It is recommended that using the prescribed model costs benefits analysis should be done at both the company and project level to decide whether to go ahead with cloud. Also, the compliance of cloud service provider to the advanced regulatory requirements should be taken into consideration as the switching cost to new cloud provider will be high at later point. Due to shorter term of insurance products offered by non-life insurances, it is less risky for such companies to move to cloud as compared to life insurance companies. Also, it is recommended that if an insurance company decides to adopt cloud then a phased migration strategy should be used in which the most critical functions should be moved in last.