We’ve talked about factors influencing an insurer’s cloud spend before, but it begs a refresh because insurers are moving beyond adopting cloud/Software as a Service (SaaS) for ancillary applications to consideration of core systems cloud enablement, and in order to get buy-in from the CFO, they must make the case for a budget to accommodate this change.
“Many companies are initially drawn to the compelling cost propositions of cloud, in which capacity is purchased on a pay-as-you-go basis, versus large up-front capital investments,” notes Doug Moore, chief technology officer with cloud-based core systems provider ISCS.
Making the case for a cloud budget, however, can involve certain challenges: For example, there is not a viable way to conduct an apples-to-apples cost comparison and analysis, because the cost structure for in-house vs. hosted services and their associated models differ greatly. The major service providers such as Azure, AWS and Google provide fairly comprehensive online calculators that take into account cost of resources, instance usage, data transfer usage and more, but as we all know, usage requirements vary. So even though costs may change from monitoring capital expenses to monitoring usage that is almost 100% variable, each insurer has different and unique requirements, which ebb and flow according to business demands. In addition, whether choosing SaaS, Platform as a Service (PaaS), or Infrastructure as a Service (IaaS), each has its own intricacies and hybrid cloud models available.
A recent report from research and consulting firm Novarica notes that insurers trying to price out a cloud initiative face these common sticking points:
- Software licensing and support costs, which can be set at different levels for in-house deployments versus SaaS implementation
- Accounting for the costs and benefits of cloud based BI environments with significantly larger infrastructure resources deployed on a shared basis
- SaaS versions, including superior DR/BCP capabilities not provided by the in-house versions
- The difficulty of correctly accounting for shared support costs at carriers, like database and network administration, which are not normally allocated to in-house application deployments and are not eliminated when a single application is purchased on a SaaS basis.
Interestingly, according to Novarica’s recent Research Council study report, “many IT departments believe they can deliver the same (if not better) services in house, or services at a lower cost than outside service providers, but they certainly cannot easily deliver variable cost models. This attribute may be the tie breaker in closer decisions or at minimum, an objective criteria that CFOs and CIOs can use to influence the heads of infrastructure organizations.”
As the transformation from on-premises systems to cloud and SaaS introduces new ways of approaching business problems and opportunities, notes the report, the tried-and trued total cost of ownership (TCO) and return on investment (ROI) formulas may no longer be relevant. “In many cases, it is impossible to know the exact costs associated with a SaaS or cloud model,” Novarica warns.
This is why insurers are well served thinking and communicating about the uncommon benefits inherent in moving to a cloud environment. In other words, whether costs for hosted services go up or down (research experts predict they will continue to go down), there is more power in proving that moving to a cloud-based computing environment is worth it.
Experts suggest that insurers frame the discussion around the reduction in infrastructure management, labor allocation to maintenance, and difficult upgrades against the cloud’s proven scalability, speed, always-on features and future readiness. As just one example, consider the open APIs that are standard in cloud services, which create cloud-to-cloud connections that improve business interactions with all stakeholders.
“There are new kinds of services available now, such as Amazon Machine Learning, that would never be available in your own data center,” notes Moore, adding that cloud’s ability to significantly enhance innovation within an insurance organization cannot be underestimated.
“SaaS and cloud technology can play a critical role in supporting an insurer’s overall business goals and its wider ambitions, whether that includes new products and services, regional expansion or entering completely new sectors,” notes research and consulting firm Ovum in an ISCS white paper, “The Path to Digital Insurance is Paved with Clouds.”
Novarica agrees, noting that the enhanced innovation cloud and SaaS introduce will add considerable, but difficult-to-calculate value to the business.