30 August 2024

How the Hybrid Cloud Helps Insurers Protect Data and Improve Business

Business is moving to the cloud in a big way.

Three in four databases will be based in the cloud by 2022, according to a report by Gartner. Cloud-based applications, data warehousing and SaaS platforms all play a role in the migration of businesses to the cloud, says Donald Feinberg, a vice president at Gartner.

As business moves to the cloud, however, so do challenges and threats. Placing data on remote servers creates the risk that cyber attacks aimed at those servers will expose sensitive information to exploitation or theft.

These threats have caused many industries, including insurance, to hesitate in their move away from in-house servers and legacy systems.

Today, however, a better understanding of security risks and a more defined regulatory environment have made it easier for companies to envision a workable cloud adoption, says Craig Beattie at Celent.

The hybrid cloud offers one way for insurers to use the cloud effectively.

Meet the Hybrid Cloud

To balance the benefits of cloud-based systems with the need for privacy and security, many insurance companies are embracing the hybrid cloud model. A hybrid cloud combines access to remote servers with an in-house server, sorting data and processes depending on how tightly the insurance company needs to control privacy and security.

One of the major selling points of the hybrid cloud is that it has no single failure point, making the cloud an effective option for organizations with variable workloads, says James Sanders at TechRepublic.

The hybrid cloud “helps carriers integrate their existing technology and to accelerate innovation, with work performed in the cloud to take advantage of mobility, social, big data and analytics,” say Accenture researchers Richard Leroy, Elodie B. de Fonetnay and Kankeyan Murugavel.

The financial services industry has taken an early lead in moving to the hybrid cloud model. This has primarily been a response to increasing competitive pressure and security regulations targeting consumer data protection, says Chris Kozup, senior vice president of global marketing at Nutanix.

Hybrid cloud approaches are gaining popularity. Kozup’s company found that 21 percent of financial organizations already use a hybrid cloud system, higher than the global average of 18.5 percent for all industries. The survey also revealed that 91 percent of respondents thought hybrid cloud to be an ideal IT model, and 88 percent expected it to positively impact their business.

Over 70 percent of insurance companies currently use cloud computing for at least part of their business, says Keith Raymond, vice president of research and consulting at Novarica. When data protection, privacy and security become top concerns, however, a hybrid approach can help.

Hybrid Clouds: Flexibility and Data Protection

Today, many companies are taking a hybrid multi-cloud approach, says Steve Robinson, general manager of IBM Cloud Labs. Mixing public and private cloud servers “gives them the open capabilities, security and flexibility to migrate critical workloads to the cloud, but also ensures they can tap into new innovative services such as AI, blockchain and analytics,” he adds.

Hybrid cloud models offer insurers the flexibility and data analysis benefits of the public cloud. At the same time, they provide full control over data storage and access. Insurance companies depend on the quality and quantity of data they’re able to analyze. Cloud storage offers a future in which data is so inexpensive to keep and access that the costs of deletion outweigh the costs of storage.

Many insurance companies are already embracing the cloud as a way to make sense of big data. For instance, a 2018 Novarica brief predicts that by 2020, over half of new core application purchases by insurance companies will be SaaS platforms, says Raymond.

While public cloud options can help insurance companies reduce costs, they may not offer the security required to meet regulatory demands or to adequately protect customer information from prying eyes, says Sandeep Pandey, CTO of AIA Malaysia.

Due diligence is required to confidently move any insurance company information to a public cloud, adds Pandey. When public storage providers can’t meet all of an insurer’s demands for privacy and security, a hybrid cloud allows the insurance company to meet its own security standards.

Hybrid cloud models also help insurance companies comply with increasingly-complex regulatory demands surrounding data privacy and security, say Juan Carlos Cristano and fellow researchers at the Financial Stability Institute. When the insurer is required to maintain control of the data’s physical location or the protocols that protect it, an in-house server can help. Specifically, it ensures compliance without hindering the company’s ability to leverage the public cloud for other purposes, like data analysis.

Challenges in Hybrid Cloud Adoption

While hybrid cloud models offer a number of advantages in flexibility and security, they can also be challenging for insurance companies to implement well.

Integrating insurance legacy systems can pose a challenge in cloud adoption, says Pardeep Bassi, head of data science at financial services provider LV=. For companies launching new applications and algorithms from scratch, cloud computing provides a level of adaptability that makes it relatively simple to create and launch whatever the insurer needs.

When an insurer relies on its legacy systems, however, the challenge becomes more difficult. “Where we’ve got legacy systems, it’s not only how do you build these models to start off with, but how do you actually integrate them back into existing systems to make sure they’re actually used and having an influence on the business?” says Bassi.

Similarly, insurance companies may struggle to integrate the in-house data with data stored on a remote server in the public cloud, says Sandip Patel at IBM. Careful tracking of data and integration of systems can help improve data analysis.

The skills of your existing staff may need to change as well. For instance, in a hybrid cloud environment, IT staff and other employees will need to understand how to use cloud-based tools for business management and data monitoring, says Scott Terrell at HealthMarkets. Your team will need to know what data is stored in-house, what data can be handled on a public cloud and how to send each type of data to the right place.

Insurance companies have one significant advantage over other industries when it comes to embracing the cloud, however. Data science is a relatively new field in computer science, but it’s at the heart of an insurance company’s work: Actuaries have been using the tools of data science for centuries to assess risk.

Today, digital transformation is improving insurance insights, but it still relies on the skills actuaries bring to the table, says Camille Haddjeri, business manager at Montreal Associates. “Insurance is a service which needs to be customized and personalized based on different factors, and deep-learning and machine learning are helping with this,” says Haddjeri.

Combining an insurer’s in-house knowledge of actuarial science with the technology knowledge of hybrid cloud and SaaS providers can help insurers launch a successful digital transformation of their business.

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