Risk and reward: how do insurers identify strategic value in the cloud?

The insurance industry is well-versed in the intricacies of risk management. Increasingly, the sector is embracing cloud technologies to navigate volatility, drive growth and build greener businesses

By now, businesses are no stranger to recovery and reinvention. Preparing for tomorrow’s economic and geopolitical disruptions is part and parcel of good governance and requires organisations to prioritise resilience.

Everything from weathering the recession to addressing climate change begins with insightful, decisive leadership. Without it, businesses risk being at the mercy of events rather than rising to the challenges they present.

Few sectors understand this principle better than insurance. Indeed, protecting companies, governments and communities from increasingly unpredictable global shocks is the industry’s bread and butter. But even for insurers, adversity has made meeting client expectations and shareholder demands more pressing - and more challenging.

Robust cloud operations have become essential for establishing efficiency, flexibility and resilience and helping insurers navigate geopolitical tensions and global shocks. When executed well, they have the potential to streamline the process of developing and pricing new products giving leaders the confidence to enter new markets, despite rife uncertainty. But, while the world might be especially volatile right now, there are exciting growth opportunities too.

It’s far more efficient to only commission the resources you actually need rather than leave kit unused in your own data centre

Peter Phillips is the president and CEO of Aon’s PathWise Solutions Group within Aon’s Strategy and Technology Group, which offers a GPU SaaS enterprise solution for life insurance companies for reporting, hedging, new product development and pricing of structured reinsurance solutions. He believes that now is the time for insurers and reinsurers to embrace the agility and resilience the cloud yields to capitalise on these opportunities through better and more timely business intelligence.

“Management’s need to understand what’s happening around them to make better decisions has never been greater … and the cloud plays a key role in managing complexity and improving decisions and outcomes for businesses in a cost-effective manner,” says Phillips.

Advanced data analytics, powered by the cloud, provides insurers with a deeper understanding of their portfolio mix, allowing them to adjust their business strategy quickly and deploy or reallocate capital more effectively. Accurate data drawn from every area of the business that is centrally available for instant analysis can also help the C-suite identify and resolve inefficiencies that may otherwise restrict growth while extracting actionable insights at speed and scale.

“In the life insurance space, users are able to interrogate their data warehouse and think about the next generation of products using modern technology like green GPUs, which use a seventh of the power versus conventional CPU-based cloud solutions and also offer a material speed up in computation time,” Phillips continues.

For insurers, modelling tasks have understandably grown more complicated in recent years. “There’s greater climate volatility, for example, and people want better management information (MI) to respond,” says Alun Marriott, technology chair of Aon’s Strategy and Technology Group. “As computational power has increased, the cloud helps insurers access this power efficiently without the inherent economic and environmental costs associated with on-premise data centres.”

Catastrophe modelling has taken a giant leap forward in recent years; artificial intelligence can provide insights that would have been impossible in the not-too-distant past. “A satellite can now fly over a town hit by a hurricane, and an AI engine can work out the resulting damage to property,” says Marriott. By sharing cloud hardware, insurers can accelerate their response to those affected and offer meaningful, timely support.

“The cloud allows companies to embrace better and faster technology that would otherwise be out of reach to them,” Marriott says. “That gives them access to better MI, better decision making and better support for their customers.”

Through advanced modelling, analytics, automation, and hedging simulations, Aon’s PathWise platform uses powerful, scalable parallel GPU processing to improve organisational workflows and cut complex life insurance calculation times down from days to a few hours or minutes. From a growth perspective, automating routine tasks through cloud-enabled machine learning tools frees employees to dedicate more time to activities with tangible strategic value.

Thankfully, transferring operations from on-premise to the cloud or shifting to a new SaaS solution has also become more efficient. “While in days gone by you’d have to recode everything from scratch, nowadays templates and workflow tools can help you automate the conversion and reduce the cost of onboarding a new solution,” says Marriott.

Once the switch has been made, insurers need only pay for the storage and computing power they need to perform certain tasks. “It’s far more efficient to only commission the resources you actually need rather than leave kit unused in your own data centre,” he continues.

By reducing the vendor lock-in that often goes hand-in-hand with legacy systems, insurers can also integrate tools from different suppliers with minimal fuss. “It’s a more integrated network of components,” says Marriott, “and that allows you to scale up and scale down as the business changes, so firms can enter new markets and also leave markets in a more measured and dynamic way.”

However, he also notes that, in some ways, spending money comes all too easily within a cloud-based environment, so the C-suite must have a clear understanding of precisely where the cloud adds value. “You can add on servers and capability very easily, so you’ve got to be much more careful about controlling what you buy and why you buy it and then reducing capacity if warranted,” says Marriott.

Phillips outlines the questions that decision-makers must ask themselves before financing cloud infrastructure: “What are the cloud costs? How does it map back to the strategy? And who are the service and solution providers with deep experience that they can really partner with companies to obtain these cloud efficiencies?”

Beyond a company’s growth goals, reducing the demand on data centres also generates substantial energy savings, keeping organisations on track to meet their ESG ambitions. For example, Aviva is transitioning its life model to the Tyche platform. The anticipated speed and efficiency gains from the switch will allow the insurer to permanently reduce the number of servers it uses.

Meanwhile, Zurich Insurance has minimised its physical hardware by adopting Aon’s ReMetrica Cloud Solution. The global insurer’s catastrophe reinsurance model requires substantial computing power to run but is only operational at set times each month. After considering various infrastructure options – including upgrading its internal hardware – it now deploys the service on-demand. Zurich is only charged when it uses additional cloud capacity to run its model, and simulation time has been considerably reduced.

In other words, the cloud offers insurers a platform for meeting their green goals while supporting resilience, cost and efficiency gains. And the benefits reach far beyond the insurance industry, impacting businesses, governments and communities that need protection in a fast-changing world.