Sweeping change is difficult for any organization. But in an industry such as insurance whose operations are tethered to a complicated aggregation of legacy systems, the organization’s ability to adapt and embrace cloud-based technology may be especially challenging. Incorporating any new technology into an embedded business infrastructure is always difficult. But that risk is multiplied in an industry that has an infrastructure typically comprised of myriad platforms serving a plethora of products subject to a range of regulation.
Cloud’s implications for the insurance IT organization are considerable. Despite the emphasis upon cloud computing and SaaS during the past few years, the insurance industry is still a slow mover. IT solution providers are often faced with a number of questions: Are the products truly fit-for-purpose? And how will cloud’s adoption change the way the department functions—are new capabilities required? Will the landscape of providers change dramatically? How can risks be best assessed and managed?
With cloud-based applications readily available, the question is not whether cloud is right for the insurance industry, rather, it's whether the IT function is ready to deal effectively with the implications of cloud. The following are a few key aspects IT solution providers need to be aware of, in order to know if customers in the insurance sector are ready for the cloud.
Business will become more of a partner. The adoption of cloud presents an opening for operations to become far more involved in buying and configuration decisions, changing the evaluation criteria and their involvement in the development of business rules. As a result, the relationship between the IT function and the business will fundamentally change, along with the balance of responsibility and involvement.
Procurement will change. Cloud computing presents an opportunity for insurance IT departments to meet market challenges by working with best-in-breed providers, as opposed to an emphasis on large legacy systems integrators. That change has substantial implications for sourcing, vendor evaluation and management, and alliance/partnership management. Pressure will also be increased on technology development, particularly emerging technology research and tools evaluation in order to assure that standards and specifications are appropriately developed.
Governance will evolve as cloud computing is adopted. No longer will the function rely upon a few primary technology platforms; the cloud forces a one-to-many governance structure designed to engage with solutions across the insurance process spectrum. That will put pressure on governance in several ways. First, because technology governance will no longer be partner-centric, staff capabilities must change, requiring an advanced level of business understanding, ability to understand the linkage between products, and a more acute awareness of risk. With increased interdependency with the business, cloud drives the need for a far more collaborative, agile governance structure, with clearer decision rights and the application of stronger ROI criteria. No longer is governance operated as a protection mechanism.
Increased business acumen. Because cloud drives closer partnership with the business, a more thorough understanding of customers, markets, products and process and associated economics becomes imperative. Not only do staff members have to become industry experts, they also must become capable financial engineers, mastering not only the quantitative and qualitative drivers of business case perform, but also the implications of a broader range of risk.
New structure and skills. As a result, the insurance IT department must focus on the attainment of new skills. Cloud not only puts pressure on staff to be up-to-date with the latest technology, but also on enhanced requirements definition and solutioning skills. Therefore, resource allocation must change in response, altering structure, reporting, roles, and accountabilities. Knowledge management pressures will become greater, forcing team members to collaborate in new and better ways in order to break down organizational silos. Communication patterns must also change, networking the IT function internally and externally on a virtually basis, breaking down old hierarchies.
Cloud can be a silver bullet for an industry highly dependent upon a network of legacy platforms. But adoption means a substantial organizational change for insurers. Are you ready to get them in shape?
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