Digital strategy – cloud or on-premises?

The IT structures in insurance companies are frequently described as complex and outdated. The insurance companies often stand in their own way during digitalization. In the financial and insurance sector, the challengers, the FinTechs and InsurTecs, are often referred to regarding how they simply implement their business models directly in the cloud. Does this step to the cloud make sense for insurance companies that have existed for a long time or does it not? This blog post should contribute to helping you make a decision.

Cloud or on-premises

The well-known advantages of a cloud strategy include flexibility, scalability, simple data exchange beyond company and system boundaries, docking of external partners via API as well as the creation of individual ecosystems. Furthermore, the mutual usage of modern technologies such as Blockchain, Internet of Things (IoT) and artificial intelligence (AI) is possible. Most cloud service providers use a simple fee structure. The customers pay per user and time unit or billing is done on the basis of API calls or processor times.

On the other hand, on-premises means independence: the license holder buys or rents software and operates it under their own responsibility in their own computer center (on-premises). In addition to the purchase and operating costs, maintenance fees must be considered as well. Customer-specific adjustments or developments can be performed independently. However, additional costs arise for the special service providers required to do this.

The offers from cloud service providers are often less expensive than on-premises operation. On the other hand, license fees are due when using the cloud and when using on-premises, the proportionate amount of work needed for maintenance must be considered. Our tip: Since the calculated costs remain constant with annual cloud solutions, it is worth doing a direct comparison over a longer period of observation. In the end, the insurance company must consider all factors to make a solid decision: costs, area of use, strategy and compliance. Compliance is and remains an important factor, which is why we want to discuss this in detail in the following section. 

Compliance & Cloud

The insurance industry is subject to strict regulatory provisions like no other. This includes the law on the supervision of insurance companies, new requirements and provisions on the operation of critical infrastructures as well as the General Data Protection Regulation (DGSVO). These basic conditions result in a compulsory comparison between the regulations and potential benefits of a cloud solution. The General Data Protection Regulation differentiates between the reliability of the processing of personal data based on the cloud provider's server sites. Due to compliance reasons, it may be necessary to undertake a precise risk assessment before a cloud project can be started.

The advantages of the cloud prevail in the long-term

The cloud has enormous advantages. The networking and usage of APIs offers new possibilities in operation, sales and business models beyond company boundaries and data silos. Without a cloud, you cannot access the IoT, which in turn forms the basis for telematics rates. The cloud simplifies the cooperation with business partners and InsurTechs. The use of solutions according to the "Software as a Service" principle can also establish quick standards between companies. Due to the number of options, a predefined cloud strategy is an absolute must for every insurance company when deciding between Cloud or On-Premises. The objective is to precisely define all processes and data that should be migrated in the cloud now and in the future while fulfilling compliance regulations.

If you have any questions about the development or optimization of a cloud strategy, our expert Karsten Schmitt is there for you.