Johanna Von Geyr, Partner and EMEA Head of Banking, Financial Services and Insurance at ISG, Explores Five Design Principles of Cloud Transformation in Insurance
A cloud transformation program should be part of an insurance company’s larger business strategy.
Many insurers have traditionally been reluctant to move their operations to the cloud, citing security or regulatory concerns. But the pandemic has forced change on both insurers (who have had to accelerate digital transformation programs to work) and large-scale cloud providers (who have had to deal with any inherent security or compliance risk. ).
Data from the Synergy research group found that the pandemic resulted in an increase of $ 1.5 billion in the broader cloud infrastructure, software and platform as a service sectors in the third quarter of 2020. Q4 figures were even more impressive, with spending exceeding $ 37 billion, or $ 4 billion more than in the third quarter (and 35% more than in the fourth quarter of 2019).
The transition to a secure and compliant public cloud
For the past year, we have been witnessing a real shift towards the public cloud among insurers. Suppliers have listened to and addressed any residual safety or regulatory concerns that insurers may have had in the past, and now offer highly secure solutions that have been designed to fit within a regulatory framework. The appeal to insurers is the elasticity of cloud solutions (you only pay for what you use in a consumption-based model), which means the ability to scale without significant upfront investment. It effectively allows insurers to switch from a CapEx model to an OpEx model.
Insurance innovators are moving away from their traditional world of data centers, on-premises infrastructure and legacy systems. The pandemic accelerated this process – and those who had already started their transformation to the cloud had a clear and obvious advantage.
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Disposal and rationalization of physical assets
This transformation poses a problem for insurers: what to do with existing infrastructure, equipment and physical assets? This leads to consolidation as part of a strategic migration program that happens over time as organizations move from an on-premises to a cloud world, relinquishing their physical assets in favor of the flexibility of the cloud. . Timing is critical, and this divestiture must be made as part of a clearly planned strategic program.
Five engineering design principles should guide this transformation agenda.
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Five principles of cloud transformation design
Five guiding principles will guide your strategic transition to the cloud.
1. Customer focus by design. The customer experience must be at the heart of everything the company does. This usually means that things are as simple as possible. Don’t introduce complexity where it isn’t needed. Before making any changes to systems and platforms, ask if this will help your business stand out by delivering a great customer experience. Is it what customers want and need? Are you using data effectively to create the products your customers need?
2. Streamline your portfolio. Look at the entire customer journey. What’s the most efficient way to deliver what the customer needs? Some insurers end up with a lot of unnecessary or unwanted steps and processes that clients have to go through to accomplish what should (at least at first glance) be a straightforward task. For example, a complex portfolio of products with low market potential is both unattractive to consumers and requires too much effort to understand. By eliminating unnecessary products, insurers can streamline their offerings and make the customer journey as smooth as possible, increasing the chances that that customer will reach the end of their journey, rather than going elsewhere. The insurer also has more resources to develop the products that customers want.
3. Analyze legacy issues and the need for standardization. Design new products to take the pressure off the departments most affected by legacy issues (primarily coverage, pricing, and administration), and include automation as a strategic game here. Standardization can be the biggest headache for insurers – it’s a prerequisite for automation, and automation is a lever to optimize your cloud solutions. Create product and process prerequisites to convert all tariffs to the most recent generation of tariffs and the latest version of terms and conditions as quickly as possible. Design new processes so that they can be changed without having to touch product models and backend systems.
4. Strengthen pricing expertise. By standardizing technology and processes, insurers can create a better understanding of production costs, leading to more precise forms of productivity control and pricing. The framework also standardizes the discount model for all business areas and sales channels, including discounts (defined via a fixed parameter). Deviation from these standards should only be allowed if there is a measurable benefit to the business.
5. Create comprehensive offers. By becoming a digitally driven business, insurers have the opportunity to forge closer ties with their customers. They move from a few touchpoints to a more sustained level of interaction. Insurers can use the data generated by connected devices to tailor offerings to customers, creating products that are both relevant and timely, and bringing customers closer to their data (and directly benefiting).
A successful cloud transformation program is part of a larger strategy to transform the business, creating scalable, streamlined products and systems that can be delivered efficiently and quickly, the way customers want. The pandemic has changed both the perception and the reality of public cloud solutions to offer a real alternative to on-premise solutions and hardware, or even private cloud equivalents. It’s the future, and we see more and more insurers embracing its benefits.