Why more insurers are heading cloudwards
- The insurtech market revenue is estimated to hit US$10.14 billion by 2025
- Insurtech is an emerging segment that enables insurers to revolutionize core procedures including claim processing
The argument for digital transformation has swept across all industries — but not all have been as active in their commitments as others.
The insurance industry, in general terms, is one of those that hasn’t. Traditional insurers employ agents to broker their policies, and their application and underwriting processes rely heavily on manual, human input. In regard to life insurance, paper applications can take weeks instead of minutes to process, and may in some cases require in-person medical exams.
But now this industry — which has been reluctant to break from old ways — faces new pressure from insurtech startups poised to leverage new technologies to do things differently, in a way that suits the digital first consumer. On top of that, traditional insurers have faced the pressures of the pandemic which are only highlighting the gaps between them and their new agile, cloud-based counterparts in insurtech who have been much better positioned to weather the storm.
“The industry has opened up to cloud tech theoretically, they have not opened up in practice,” observed Gari Gono, head of solutions at INSTANDA.
But things are slowly beginning to change. Deloitte found that insurers were likely to invest significantly in cloud over the next three years, as incumbents begin to build in their own approach to insurtech in efforts to enhance their offerings to partners and customers alike.
As a result of this maneuvering, the global insurtech market value is expected to rise from US$5.48 billion last year to hit the US$10.14 billion mark by 2025, as the technology provides enables simplified claims processes, improved communications, and capabilities to implement automation.
One of the technological barriers holding firms back from innovation is that the legacy systems that insurers depend on day by day leave little room for flexibility or advancement.
By making the leap to cloud technology, insurers can test and learn more quickly; they are able to provision and decommission technology at a faster pace with minimized resources. Cloud’s scalability, meanwhile, means that insurers can modulate their usage as needs demand.
Leading multiline insurer, Zurich, shifted from operating on traditional data center to outsourcing to a Platform as a Service model. The Swiss insurance company saw the lead time to provision new workloads dramatically reduced from a time period of weeks to just 48 hours.
“We’ve really seen some dramatic improvements in provisioning time, and we’re not just provisioning a virtual server,” said Chris Rogers, Zurich’s head of service delivery and integration.
“We’re provisioning a virtual server that’s integrated into the rest of the technical environment and into the access management environment — something that is actually usable to a developer. We’re really pushing toward Platform as a Service rather than just Infrastructure as a Service,” Rogers shared.
Insurance giant Allstate takes a step further in the tech game by setting up its CompoZed Labs unit to accelerate the development of new software services. The insurance company is not only handling developers the tools to innovate and develop new software services but are also establishing a wining cloud environment to deploy applications.
Alongside scalability and flexibility, another key advantage of having insurers embrace the cloud is in consolidating mergers and acquisitions (M&A).
A majority (94%) of insurers view mergers and acquisitions as a growth strategy. M&A provides insurers more opportunities to expand their core services and offer more products to customers. While many insurers are keen on M&A, the reality is that merging and integrating two disparate IT systems could take years to achieve, while some insurance companies may end up exhausting their resources before the desired ROI is even reached.
Cloud-based systems help IT systems merge easily through the transfer and exchange of data intra-cloud, merging security systems together via a common platform, and overall, smoother integration efforts.
Insurers leveraging cloud computing systems will find themselves leading in M&A with reduced time frame and resources needed for a successful deal to take place.
Cloud technology is already transforming the insurance sector. Organizations replacing legacy systems with cloud resources will find themselves upgrading and modernizing existing core systems to gain a competitive edge.
KPMG describes the appeal of insurtech as bringing “positive energy, new opportunities, and rewarding outcome.” While there may be resistance from incumbents to decouple from existing governance structures, “organizations must push for this in order to break down the cultural obstacles that are holding them back.”