Tag Archives: total cost of ownership

Busting Myths on the Cloud (Part 2)

Many insurance companies are not moving to cloud computing because they believe they can’t recover their sunk costs in IT infrastructure. This is not correct. Insurers can achieve big total cost of ownership (TCO) savings by migrating to the cloud.

Cloud computing offers insurers substantial benefits as they endeavor to adapt to changing market conditions and introduce new digital products and services.

Many insurers, as I mentioned in my previous blog post, are not capitalizing on these benefits because of some serious misconceptions about the cloud.

One of the most persistent and widespread of these fallacies is the belief that sunk costs are not recoverable. According to our research, 35% of insurers are holding back from embracing the cloud because they believe it offers unfavorable total cost of ownership (TCO). Such views are way off the mark.

Take a look at Suncorp. This Australian banking and insurance group reduced its data center space by more than 75%, and also curbed its utility costs, by moving to the cloud. Several mergers and acquisitions had left Suncorp with a highly complex IT environment with considerable redundancy. It was operating more than 2,000 applications across many different technology silos. Furthermore, the company needed to support multiple major business brands.

Instead of continuing to maintain and enhance its complicated and expensive IT infrastructure, Suncorp opted to move to the cloud. It first migrated its storage facilities and then transferred its other workloads and applications. The shift to the cloud has been a big success.

See also: Lost In The Cloud: Five Strategies For Risk Managers Facing The Challenges Of Cloud Computing  

Other insurers should take a fresh look at the substantial benefits that cloud computing offers. We’ve found that 60% of insurance companies replace their legacy infrastructure every three to six years. Most of these insurers, therefore, can optimize and align their IT replacement cycles with a migration to the cloud. This would allow them to avoid unnecessary capital expenditure, minimize write-offs and sunset their depreciation schedules. These benefits add up to considerable cost savings. What’s more, insurers can also capitalize on the data center space they’re no longer using by subletting to an IT services provider or cloud operator. This would generate additional revenue and improve their asset utilization and energy efficiency.

In my next blog post, I’ll discuss why the cloud is essential for digital transformation in the insurance industry.  Until then, have a look at this link. I’m sure you’ll find it helpful.

Eighty percent reduction in insurance carrier costs? Cloud as rainmaker.

What Does Success Look Like?

It seems every press release you read, every case study in the news, every session at industry conferences and every webinar on tap for the next six months will at some point mention the 100% implementation success rate of the vendor involved. That fact, in and of itself, throws serious shade on what really constitutes implementation success and dilutes the impact or validity of the concept as a whole, but should it?

Depending on where a person sits, implementation success can mean different things and may include different elements, technologies or metrics. Implementation success is therefore often qualified by varying criteria that are completely dependent on the role of the individual in the project or the company. To truly guarantee implementation success, all perspectives and perceptions must be considered and incorporated.

For the CEO, it’s all about the big picture. Sure, nearly all CEOs want an increased ability to process new business and grow the company organically, but time and again individuals in this role will focus on these key questions:

  1. Did we implement what we set out to implement?
  2. How will this implementation affect our ability to modify existing products or launch new ones?
  3. Does this implementation support our construction of a future-ready technology environment?

For the CFO, everyone instantly assumes a successful implementation is simply about being on-time and on-budget, and while those factors are definitely important, CFOs additionally want to know:

  1. What is the maintenance and licensing like on this new technology product, and how does it affect our total cost of ownership (TCO)?
  2. Does this implementation make other downstream or supporting systems obsolete, requiring the company to make additional technology investments in the coming year(s)?
  3. Does this implementation allow the company to retire existing legacy systems and recognize cost savings in maintenance and support of these systems?
  4. Is support or the professional services required to implement changes included in the initial contract price, or is it an additional, and continuing, charge?

For the CIO, data conversion is a crucial, yet truly not sexy, part of the package that allows one system to be turned off and the other turned on, so to speak. It is important to understand that while CIOs are often thought to have the most interesting, cutting-edge piece of the insurance technology puzzle, these individuals are not easily distracted by solutions, tools and gadgets that turn out to be little more than bright, shiny objects. Questions CIO typically focus on when measuring implementation success include:

  1. Does my internal team have the expertise today to maintain the new solution, including making simple changes without deep technology programming expertise or the ability to create and implement custom coding?
  2. Will I be able to easily integrate emerging technologies as the need arises?
  3. What is the upgrade path for this solution that will clearly demonstrate my company is not implementing legacy?

Other players, including the company’s heads of claims, underwriting and customer service, are counting on achieving a certain percentage of straight-through processing (STP), decreasing the time from first notice of loss (FNOL) to claim resolution, and still others are rabid about mobile access and self-service capability delivered via a portal. Alternatively, FAIR Plans, for example, are less concerned about growth and bottom line profits, but instead are focused on increasing internal efficiency and delivering a top-quality customer experience. Different strokes for different folks.

So, maybe it’s time to acknowledge that the magical middle ground that will make everyone happy likely doesn’t exist. It’s back to the old saying that it’s impossible “to make all of the people happy all of the time.” The trick is knowing which stakeholders’ happiness is on the nice-to-have list and which is on the must-have list. Keep in mind, there are degrees of happiness, and incorporating even small pieces of capability can be important when it means validating stakeholders’ priorities and implying broader ownership across the enterprise.

Ultimately, what composes implementation success is unique to each company and should be well-defined for each company before the start of the project. All projects should have a well-defined set of expected outcomes from both business and technology that need to be achieved to have that project defined as a successful delivery. While budget and schedule can be a part of the objectives, they should not be the primary drivers. A successful implementation is one the delivers the required business and technology outcomes.

When the core system implementation itself is done right, with the right partners and a well-defined set of objectives, it leaves room for peripheral goals to be achieved at the same time with a faster ROI and the ability to get back to the business of insurance.