Insurance software from the cloud: digital change

Wilm Tennagel |

Insurance software from the cloud: digital change

"In the long run, insurance companies will mostly rely on cloud technology," predicted Oliver von Ameln, Managing Director at adesso insurance solutions during his presentation at the "Exhibition Congress IT for Insurances" at the end of November. The industry event, organized and held by the Versicherungsforen Leipzig, occurred virtually this year due to Covid.

It is precisely this global pandemic that has revealed the benefits of and the need for digitalization. The industry association of the German information and telecommunications industry Bitkom found out that one year after the first shutdown with compulsory home office, only 12 percent of all companies with 20 or more employees are said to doubt the economic benefits of digitalization for their company. The vast majority of insurance companies are aware that they must increasingly digitalize their business in order to meet policyholders' needs for greater flexibility, individualized products and prices. "Digital" needs to become a part of the company DNA and that starts with the development of new insurance products. At this point, digital startups and insurtechs can not only be a challenge for the traditional business model, but on the contrary, they can also be an opportunity in terms of partnerships and cooperation. This requires an IT landscape that offers the agility and flexibility needed to make partnerships technically possible.

The path to the digital future begins with cloud technology

There is no alternative to the use of cloud technology for future-proof insurance companies. In particular, "Software as a Service (SaaS)" and cloud-based infrastructure services represent the means of choice to meet the challenges of digitalization. Oliver von Ameln underlines this in an interview with the German industry media outlet Vb-Versicherungsbetriebe: "SaaS certainly shows its main benefit on the cost side. With the right strategy, the TCO (Total Costs of Ownership) can be massively reduced. As the owner of an enterprise data center, depreciation and operating costs are enormous; staff is either underutilized or overworked; new technical and regulatory changes regularly require ongoing training and development. Today, it only makes economic sense for organizations with more than 100,000 employees to operate their own data centers. Below that, it's hard to justify if the quality of the operation is going to stand up to the competition."

Insurance companies must keep an eye on the utilization and costs of their data centers

The workload amplitudes at insurance companies and thus the necessary IT capacity are relatively high. Switching providers in motor vehicle insurance increases at the end of the year, premium adjustments in life insurance require high computing power, as do periodic benefit applications in life insurance: in some cases, performance one hundred times higher than the annual average becomes necessary. "If the server farm is then just running at idle 90 percent of the year, that's ruinous from an earned value management perspective. And this at a time when the actuarial result is becoming more and more important, as investment income is almost impossible to achieve", von Ameln continues.

This is exactly where externally hosted applications can help in terms of productivity and flexibility:

  • Potential for cost savings and efficiency gains through a reduced IT infrastructure
  • Rapid scalability of IT services
  • Provision of applications independent of the existing system landscape
  • Continuous, automated updates
  • Reduction of effort and risk for operation and maintenance of core systems
  • Rapid introduction of new products and market adjustments through automation
  • Location-independent networking of different actors

Looking past the end of your nose in insurance

As a rule, insurance companies would do well to think outside the box, at the customer orientation and customer experience of omnichannel-oriented e-commerce companies. Successful players address the "pain points" of their customers. Long waiting times, confusing forms, incomprehensible contract clauses and discussions with different departments at Amazon or Zalando are almost non-existent. Simplified and improved processes at the customer interface are therefore rightfully the focus of most insurance companies. To realize "digitalization" in a customer-centric way requires some changes in the backend:

  • A simplification of tariffs and the agile development of the product range lead here to lean IT processes as well as the resolution of inherited liabilities in the IT architecture.
  • The use of future technologies, such as artificial intelligence, requires the dissolution of isolated solutions that only increase complexity unnecessarily and increase cost pressure.

This blog post kicks off a three-part series called "Insurance Software from the Cloud." In future articles, we will examine the aspects of "technical implementation" and "compliance and security".

If you can't wait for the other releases, download our free whitepaper Plug & Play - Application Landscape for Insurance as Software as a Service (only available in German) now and learn what insurance companies need to consider when they want to purchase software as a service.

Are you looking to modernize your IT and thinking about switching from on-premises to an SaaS operating model? Then talk to us. Karsten Schmitt will answer your questions.

Do you have any questions or comments? Then please leave us a comment.

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