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Insurance in the Cloud by Krish Khambadkone
Krish Khambadkone is a Client Architect at Infogain with over 18 years of experience in architecting and building systems. He is currently focused on Middleware and SOA integration both at the Strategic and Tactical levels, mainly in the areas of SOA evangelization and governance.
A few topics have been crying for attention lately and chief among them is Cloud computing. This is a very interesting area and is only going to gain momentum and grab a lot of headlines in the coming weeks and months. |
Today anything from oil supertankers to every inch of Diego Maradona’s world cup soccer winning legs can be insured. There is a vast array of Insurance types such as Medical, Property, Casualty, Auto, Business, Life, Pension and Annuities etc. The intricacies of the various facets of the industry are many and the processes span quoting, pricing, ratings, underwriting, endorsing, claims and so forth. And, there are various providers and players across the Insurance value chain.
With all of this complexity, it wouldn’t seem that the Insurance industry is a good candidate for cloud computing—an architectural paradigm that relies first and foremost on the standardization of processes that can be offered as services and hosted by an external provider.
But, I believe just that. In fact, I foresee a time in the not-too-distant future wherein the Insurance industry will witness its parallel to what Salesforce.com provides for general CRM functions today. And here's why.
Two Categories of Insurances Processes
Insurance--regardless of what is being insured—can be broadly classified into two sets of processes.
1. Front End Processes: comprised mainly of the processes involved in the quoting, pricing and selling of insurance policies
2. Back End Processes: involved in the fulfillment of insurance claims.
In this article we will focus primarily on the Front End Processes. Though the various types of insurance products differ greatly in their function and applicability, these front end processes through which they can be managed are quite streamlined and identical. Let’s take a closer look.
At a high level, Front End processing involves the following standard steps:
- Submission of Application (Insurance Type – Medical, Auto, Property etc.)
- Rating
- Underwriting
- Quoting
- Binding
- Endorsement and Issuance
The key driving factors across the whole front end process are Submission and Rating. The Submission process is driven largely by a set of standard questions depending on the type of insurance that the client wants to buy. The Rating process is driven by a set of factors and algorithms that utilize the answers to the submission questions as input and then arrive at the Quote or Price for this particular Policy.
The majority of Insurance types are primarily driven by a standard set of questions and a Ratings engine that is specific to that type of insurance. In fact, in many cases, the processes that support these types of insurance have become standard to the point of being commoditized. So much so that many mainstream providers have outsourced their Front End processing activity to be conducted in frameworks and systems hosted by external vendors.
These processes have evolved to such a degree that the entire process from Submission to Quoting can be executed as a Straight Through Process without any human intervention. The days where an actuary had to trudge through mountains of statistical information and match that with all the factors to determine the risk and arrive at a price or quote are over. The actuary has now been replaced by sophisticated pricing engines that can trudge through these statistical mountains stored in Data Stores such as Databases or Warehouses and with a combination of Algorithms and Factors arrive at more accurate pricing in few seconds.
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In turn, a majority of the platforms offered by vendors who have created the infrastructure to support Insurance front end processing are now SaaS oriented. It is due to this standardization of processes and the existing Software as a Service (SaaS) mode of operation that the leap to Cloud computing for Insurance is not that difficult.
SaaS Execution Models
Taking into account the SaaS-oriented nature of the systems to support Insurance front end processes, several execution models have emerged. These models can be termed as Hybrid Cloud implementations since not all of the functions have truly moved to the Cloud.
Some of the existing models include:
- SaaS in a Virtual Private Cloud
Here both the software and hardware are provisioned by the SaaS vendor in either a virtualized of non-virtualized environment.
- SaaS in a Hosted Environment
Here the SaaS infrastructure in terms of application development and deployment is still private and under the ownership of that particular SaaS vendor but is hosted in either a Virtualized or non-Virtualized Hardware environment (Servers and Storage).
These models are already prevalent with many Insurers outsourcing this function to SaaS vendors. This is increasingly being availed of by Insurance wholesalers in a B2B fashion rather than a B2C mode. Individual customers still go to the respective Insurance company’s website to obtain quotes.
The SaaS infrastructures are used by Brokers and Agents who aggregate quotes or obtain them in bulk and not by the end customers themselves. The next model discussed below could change that drastically.
The Software for Rent concept originated with the emergence of platforms like Salesforce.com. This has matured so significantly that various flavors of SaaS are now prevalent ranging from custom vertically aligned SaaS platforms at one end to generic platforms marketed as PaaS (Platform as a Service) for building any type of SaaS application.
As these proliferated and the vendors had to deal with a variety of factors including economies of scale in terms of capital expenditure, virtualization became an obvious choice. Cloud Computing is taking this to the next level.
One of the emerging paradigms is the following and this does not require a huge leap of faith as it can be viewed as natural extension of the current state of the art for Insurance Front End processing.
- Public Cloud for Insurance Front End Processing
In this case, there is support for the Do-It-Yourself model—including the setting up of custom front ends for gathering questions, building configurable rating engines with metadata and factors, providing hooks for quotations, and for underwriting and policy issuance. This would amount to the creation of a "QuoteForce.com" for Insurance Front End Processing.
I think the day is not far off where we’ll see a public cloud for front end insurance processes. The current trend has proven that there are enough volumes to justify it and the processes have already been standardized and created as services. Time will tell.
Posted by Krish Khambadkone on 18 April, 2010
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