4 Critical Questions About The Cloud

Four questions that executives at insurance companies and other businesses should be asking about the value and security of the cloud computing model.
Slideshow: Cloud Security Pros And Cons
Slideshow: Cloud Security Pros And Cons
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Despite the ever-increasing buzz about cloud computing and its purported operational and economic benefits, insurance executives still have many legitimate questions about the value and security of the cloud computing model. Insurance & Technology has identified four of the most pressing questions and provides some answers to help CIOs make up their minds.

1. Where should I start?

One would be forgiven for not wanting to hear anything more about the term "cloud computing." Like many buzzy terms, its ubiquitous presence in technology circles can lead to some fatigue. But for insurers, now is the time to begin paying real attention to the cloud, as carriers are finding more ways to incorporate the platform into their IT organizations.

"It's important to get the topic out there for other CIOs," says Judy Haddad, CIO and CTO for Fort Lauderdale, Fla.-based Patriot National Insurance Group (about $200 million in premium). "From my perspective, I like to see what other people are doing. That leads me to say, 'What else can we do?'"

Haddad says she learned a lot about what's possible in the cloud from a roundtable discussion she had with other CIOs at the recent ACORD LOMA Insurance Systems Forum. She notes that she had been thinking about leveraging the cloud only for disaster recovery but found that many of her peers also were running utility apps such as email in the cloud.

Many of the unique leading-edge applications of the cloud are coming from newer companies. Because of their lack of large, complex legacy systems, smaller and newer insurance companies have an advantage in adopting cloud technologies. One of these smaller carriers is White Plains, N.Y.-based PURE (Privilege Underwriters Reciprocal Exchange; $83.3 million in 2010 gross written premium). The company, which writes coverage for high-value homes, autos and more, launched in 2006 with, among other things, a call center operated in the cloud.

"Instead of having intricate switching and routing systems, along with people to support them managing the flow of calls, we outsource [that] management and maintenance to a partner," says PURE CIO Stuart Tainsky, who declines to identify the cloud provider. "We still appreciate the flexibility that the outsourced solution gives us, particularly as this growth has meant the addition of employees at a relatively quick rate."

Tainsky credits this cloud-first approach with helping the company grow over its five years of existence. Still, Tainsky notes, the company's core systems are not cloud-based (they are, however, hosted off-site on virtualized servers). "It does take patience to find the right solution that meets your business needs," he says. "We have yet to see a secure cloud offering for our [policy and claims] applications that would provide the flexibility we need. If they arose, we would certainly consider it."

2. Does cloud computing really save money?

Since its emergence, cloud computing has been touted as a cost-saving endeavor. But it's a nuanced point: Just because money that had been spent on building, powering, and maintaining data centers is being saved doesn't mean it's being taken out of the IT organization completely.

"It's optimizing the money that you're spending," says Mark Gorman, the principal of insurance IT consultancy Mark B. Gorman & Associates. "Cloud allows companies to move intellectual property from non-high-value-add functions to high-value-add functions."

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