July 10, 2016
‘Core in the Cloud’ Reaches Tipping Point
Because of demands for adaptability, this is the first year that a majority of new core systems will not be deployed on-premise.
Core in the cloud is a hot topic that has garnered a lot of interest and an equal amount of debate as insurers confront the challenges that the digital world brings to our industry, and, certainly, insurers’ use of cloud has increased. Even though there has been a lot of discussion on this topic, the exact momentum of core in the cloud has been difficult to pinpoint. SMA’s latest research, published in Insurers’ Core Systems Buying Trends, reveals that cloud deployment has reached a clear tipping point in insurance: 36% of all core systems purchased in 2015 are being deployed in the cloud, especially policy and claims. In fact, this is the first year that SMA has found that a majority of new core systems will not be deployed on-premise: 58% of insurers made the critical decision to outsource the hosting, maintenance, and upgrades.
The challenges of both security and resources are major drivers for insurers turning to the cloud. Although insurers of all sizes are choosing cloud, those with DWP under $250 million (Tier 4) are the most likely to be using core in the cloud, especially suites. Tier 4 insurers must home in on market differentiators that keep them abreast of evolving technologies and energize their customer base. By taking advantage of core in the cloud, these smaller insurers offload a large portion of the work that has consumed their IT staff, allowing them to refocus their energies on the kind of competitive differentiation that cloud deployment makes possible.
Core in the cloud also gives insurers access to much more advanced cyber security than they could easily foster in-house. Small insurers who have taken to the cloud have realized that their limited resources must not compromise their policyholders’ data and that cyber security is an area where the cloud provider is likely to have much greater expertise than the insurers themselves.
SMA’s research has established that cloud is also strongly correlated with broader functionality in core systems, including extended core-adjacent functionality like portals and data and analytics tools. This robust capability, which is often pre-integrated within cloud solutions, saves the insurer time and implementation costs. For example, a customer portal that smaller insurers develop for thousands of customers will still be compared with portals put out by insurers with DWP of more than $5 billion (Tier 1), whose portals serve millions of their own customers. With core in the cloud, these smaller insurers have access to much more advanced capability, which strengthens their ability to differentiate themselves in the market regardless of the more extensive resources available to their largest competitors.
See also: 7 Imperatives for Moving Into the Cloud
Expertise, security and resources also play a role in the other major cloud consumers: self-insureds, municipalities, state workers’ compensation funds, etc. These organizations are eagerly taking to the cloud for their core system investments, which are usually stand-alone policy or claims systems. Cloud-based core systems are a perfect solution for these companies’ needs, because they can get advanced policy and claims capabilities with the flexibility they need, benefiting from the best practices already in place for other cloud customers.
Flexibility is the key to core in the cloud’s appeal, and as new digital ecosystems create new demands on insurers (and non-insurers that write insurance), that flexibility becomes ever more attractive. We expect that buying patterns in 2016 will show even more insurers shifting to core in the cloud to take advantage of its many benefits.