The increasing use of digital tools and services, as well as the corresponding surge in data generated from digital interactions, has made technology a crucial competitive capability for insurance carriers. In that context, cloud has emerged as a generational opportunity, with leading carriers already using it to serve customers better, faster, and more efficiently.
Insurers join most organizations across all sectors in expecting to significantly ramp up adoption and migrate a growing share of their compute environment to public cloud within the next five years (Exhibit 1). That intention is reflected in the projected 32 percent annual growth in cloud services by 2025.
The most important thing to understand about cloud, however, is that it’s not a more efficient way to operate IT, but a force multiplier for generating value for the business. This reality is why it is critical for business leaders, particularly business unit CEOs and business unit heads, to understand the value at stake and what it takes to capture it. Insurers that use the cloud effectively can unlock such desirable capabilities as providing omnichannel experiences for customers, developing a diverse portfolio of integrated services, and rolling out solutions at unprecedented speeds.
Business unit CEOs understand the nuances of the business and have accountability for identifying and driving the change. They should therefore act as orchestrators of the cloud migration and coaches for the rest of the business leadership in setting bold aspirations and establishing the organizational model that enables the business to harness cloud’s full value.
Through deep discussions with insurance business unit leaders and years of experience helping them migrate to the cloud, we have found that the business units most effective in capturing cloud’s value focus on two key areas: understanding where the value in cloud lies and building a partnership between business and IT.
Be clear about where the value is in cloud
Most insurers still vastly undervalue cloud’s potential. Our research shows that the EBITDA run-rate impact of cloud on the insurance sector will be $70 billion to $110 billion by 2030—in the top five of all sectors analyzed. When looking at EBITDA impact as a percentage of 2030 EBITDA, insurance is the top-ranked of all sectors, at 43–70 percent.
This value comes from two sources.
The first is rejuvenation, which focuses on using cloud to lower costs and risk across IT and core operations. It can be predominantly driven by IT teams.
The second source of value is innovation, which focuses on harnessing the cloud to accelerate or enable the development of new revenue streams. That includes, for example, faster time to market or new-product development—using advanced analytics, IoT, and automation at scale. A close partnership between IT and business leadership is needed to drive the innovation. One insurance carrier, for example, announced a new direct-to-consumer business targeting gig-economy workers and retired baby boomers, which was made possible by a host of cloud-native services including AI-based chatbots, data services, and automated or digitized workflows.
As in most sectors, the value of cloud-facilitated innovation in the insurance industry dwarfs what’s achievable through rejuvenation.
By understanding the hierarchy of value, insurance companies can move past the proverbial low-hanging fruit, the most accessible benefits of cloud that require limited business engagement (Exhibit 2). Only a select few companies, where business leaders have led the cloud transformation in tandem with technology leaders, have been able to capture the full potential of cloud.
Those carriers that have effectively tapped the hierarchy of cloud value have realized significant benefits, including the following:
- Faster time to market. New capabilities, business features, and products can be more quickly developed, tested, and launched in cloud than in traditional environments. This advantage is particularly acute for early movers, who can respond to market changes much more quickly than their non-cloud competitors. For example, when a large, global property-and-casualty (P&C) company adopted a cloud-based policy administration platform, it was able to bring new specialty insurance products to market within three months.
- Lower cost to serve. Cloud technologies and tools enable better asset utilization and more-flexible operating models. These make existing revenue pools more profitable and help businesses access opportunities that were previously not economically viable. One investment management company developed a “cloud-native” record-keeping solution, which has improved efficiency, scalability, durability, and automation. It now has a 100 percent cloud-native architecture that can reduce the cost of computing by 30 percent and deploy workloads up to 20 times faster with greater resiliency.
- Economies of scale. Cloud can easily scale either up or down as needed, unlike on-premises data centers. Cloud provides the compute power that is needed to fully understand and make use of incredibly large data sets, such as tens of millions of claims data points. One wealth management firm is using cloud-based data and analytics algorithms to achieve industry-leading rollover rates and improving the lifetime value of clients by delivering nudges based on key life events, such as likelihood to terminate and retirement.
- Access to advanced capabilities through cloud services. Advanced cloud capabilities allow companies to generate insights that previously demanded intensive resources to develop. For example, machine learning services can be used to identify potentially fraudulent activity much faster. Tools are available that enable companies and their partners easier access to regulatory information, helping them to stay compliant at lower cost. One financial-services company has moved all servicing to cloud to use a host of cloud-native tools. This has enabled it to serve smaller customers than it could before. Costs per call are much lower because agents are far more productive when they rely on completely automated “transactional interactions,” such as the use of advanced interactive voice response, chatbots, and self-service tools. Customer satisfaction scores have increased, and agents can now spend more time with customers for more complex transactions and interactions. Insurance companies have found 12 cloud capabilities particularly relevant and useful to their business (Exhibit 3).
To increase the cloud’s business impact, major institutions are negotiating transformative partnerships with cloud service providers (CSPs) to make better use of cloud technologies.
Build a close working relationship between IT and the business side early in the cloud journey
In our experience, cloud transformations are most successful when they are joint efforts between business and IT, rather than purely IT-led initiatives. Such collaborations are more likely to direct efforts efficiently at the sources of business value and at business outcomes aligned to the institution’s overall goals.
In successful business–IT partnerships, IT leaders and business unit heads have worked closely with each other to educate the business—and the board—about cloud in the following ways:
- Incorporate cloud topics into strategy discussions by laying out the ways that business goals can be enabled and accelerated through cloud services—for example, by harnessing AI to improve the accuracy of predictive analytics on insurance needs. In this way, both the business and IT can build a practical understanding of cloud technologies and their business benefits. IT leaders should develop a portfolio of examples detailing how their peers leverage cloud. These activities are critical from a capability-building, business-adoption, and change-management point of view and will also help the leaders across the business visualize the “art of the possible.”
- Build excitement about the cloud and its possibilities through a joint immersion program for IT and business leaders (Exhibit 4). These immersion sessions could serve as jumping-off points for new and existing portfolios of cloud-enabled initiatives as well as lay the foundations for effective business–IT collaboration. They might include “go-and-see” visits where business leaders can learn from their peers in other institutions who have gone through similar cloud journeys. The most effective immersion programs also include a cloud learning curriculum for business leaders, with a focus on the business impact of cloud. This will help them to gain a deeper understanding of why cloud matters and how it can enable and accelerate the business value of transformation initiatives in each business domain.
- Encourage the business unit leadership team to be the change agents and evangelists for cloud within their organization and communicate the value that cloud can unlock within their areas. Successful cloud journeys involve selecting and training leaders in the business to, for example, think in terms of operating expenditures in calculating cloud spend and work with teams to develop products, and to become cloud champions to help the rest of the organization understand the business value of cloud. They also call on functional teams, such as operations, marketing, and legal, to highlight the value of cloud for their areas and how it can enhance their functions.
At one large, global life and retirement company, the CIO orchestrated a three-month cloud immersion program for the company’s top 100 business and IT leaders. This senior leadership team started off by learning the basics of cloud through field and forum exercises, went on “go-and-see” visits to two companies further along in their cloud journey, and targeted sessions with CSPs to learn about practical use cases from other industries in such specific functional areas as marketing and customer analytics. Coming out of these sessions, the leadership team identified the key cloud capabilities most relevant for them. For each capability, they assigned a go-to person, or “navigator,” from within the leadership team to help the rest of the organization quickly and efficiently advance in that capability.
It is critical for business leaders to understand the potential of cloud and inspire senior leadership to think about the “art of the possible.” It is the first step in what is often an intense learning and change-management process, but making that investment now, before individual companies are overtaken by faster-acting competitors, is essential for companies to compete effectively and sustainably.