Since the end of January, cloud-based core systems replacements have increased across insurance, especially among mid-sized carriers. AAA Carolinas, SafeAuto, Mutual Assurance, Lawyers Mutual of NC and Catholic United Financial have all announced cloud for core agreements with service providers.
A key factor behind the industry trend is insurers' familiarity with cloud outside of core systems, according to an April study from Novarica. Companies are already using cloud for ancillary functions such as, human resources, finance and email.
“We are passed the tipping point in adoption,” said Chuck Ruzicka, VP of research and consulting at Novarica. “Insurers know they want to switch to cloud, but want to understand implications, capabilities and contracts. There is wide enough adoption right now at all levels.”
Novarica identified speed of deployment and the ability to sunset current applications as the biggest benefits of switching to cloud. Ease of upgrade and cost management are the biggest challenges. Core for cloud services tend to cover policy, rating, underwriting, billing, claims, business intelligence, document creation and agent or customer portals.
A New Market for Servicers
As mid-size carriers moved away legacy systems to improve core processes, tech providers began capitalizing on new clientele, offering cloud to startups and insurers for references, experience and revenue.
“We opted to implement a cloud core system mainly for disaster recovery purposes in addition to eliminating the need to make costly upgrades to local servers,” said Sage Dunlevy, project manager for Lawyers Mutual of NC, which announced its SaaS agreement with ISI in January. It is still too early to gauge benefits or impact on operating costs, she added.
While still in early implementation itself, AAA Carolinas expects its technical expenses will decline by four percent after it fully deploys Guidewire’s InsuranceSuite in the first quarter of 2017. AAA Carolinas and Guidewire agreed to terms in May with cloud support provided by Ernst & Young.
“Cloud-based systems are usually more reliable than systems that are hosted onsite. Implementing Guidewire in the cloud will ultimately drive the total cost of ownership of the system down. These savings will be passed to the customer,” said Tiffany Wright, PR manager for AAA Carolinas, adding the insurer will also get a more robust disaster recovery program by switching.
Cloud Security and Ease of Upgrade
Two common challenges for cloud converters remain choosing a secure vendor and managing switching costs, according to Ruzicka. In its survey, Novarica found a majority of insurance CIOs (70%) look at vendor security first when evaluating SaaS offerings followed by integration experience and service and support levels.
“AAA spent a significant amount of time in its due diligence to make sure that the vendor was able to meet its standards as it relates to privacy and security (of data in the cloud). This is no longer a concern for us,” the insurer said.
When managing conversion costs, Ruzicka says carriers don’t see there is still a need for staff to manage vendor relationships. Insurers also don’t lose legacy systems as quickly as people think. Costs hang around as remaining systems are put on the cloud.
The good news is, once implemented; SaaS model upgrades are applied sooner and are also configurable. Insurers tend to customize cloud systems by writing code that better fits their needs. Newer models allow insurers to easily transfer data to the latest versions. Yet, insurers do still spend money on expensive analytics tests to ensure their code still works.
“It raises the need for insurers to improve testing through automation,” Ruzicka said. “They change the design and work around what they want before they understand how it can help. Everyone thinks they have some secret sauce.”
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