Modernizing Property & Casualty Insurance Industry Through Cloud Computing and SaaS Solutions
- Dec 22, 2021
- 7 min read
Written by Sachin Srivastava
One of the most important sectors of financial services is the property and casualty (P&C) insurance industry, which covers the essential risks of assets, liability, and property damage in the event of both man-made and natural disasters. As climate changes, natural disasters, and cyber threats continue to disrupt the environment and businesses alike, and as the regulatory bodies are putting pressures on the P&C insurers, they are looking at innovative products and digital solutions that are more customer-friendly, responsive, and also keep up with the market dynamics. Digital transformation therefore, has turned out to be a key to remaining competitive and resilient in this ever-evolving environment.
Over the years, P&C insurance executives have recognized two fundamental performance bases: cost control and underwriting performance. Underwriting is focused with managing a portfolio and identifying potential hazards. Risk selection, Pricing, Coverage selection, Capacity & Limit management, and Risk Spreading are its constituent parts. Customer relationship management (CRM), Policy Administration Systems (PAS), Claims Management, and Analytical Technologies are often separate components of P&C insurance.[1] Industry surveys reveal that 64% of P&C insurance executives believe that the biggest obstacle to Digital Transformation is antiquated systems, which are preventing integration and crucial data access.
A closer look at the core functions of P&C insurance
Key components of the functioning of a P&C insurance organization are:
Underwriting is a procedure that involves risk assessment and pricing. This is generally done by using data such as past claims, location, and customer profiles. Besides that, it also involves a decision regarding the acceptance of the policy and at what premium.
Claims management is primarily about the timely assessment, validation, and settlement of claims so that the confidence of customers is kept while at the same time fraudulent losses are minimized.
Policy administration is the complete management of insurance contracts issuance, renewals, endorsements, and cancellations proper data handling and compliance being the main features of this process.
Risk management is a tool that is behind these functions and it is helping the insurers to find, gauge, and alleviate risks with the help of the reinsurance tactics, diversification, and actuarial forecasting.
In combination, these functions allow P&C insurers to keep their operations stable and at the same time give back to their policyholders. The process of property and casualty insurers is presented in Figure 1, along with year on year P&C Insurance Growth Metrics by Line of Business (based on the data obtained and modified in reference to NAIC 2020 P&C Insurance Industry Report and industry estimates), in Figure 2.[2]
Cloud computing use case for P&C insurance
Cloud computing has revolutionized business practices across all industries, including the insurance sector. Numerous applications, including those for business, data storage, backup, education, entertainment, and management, are made possible by cloud computing. The private, community, public, and hybrid cloud computing deployment methods are shown in Figure 3. Within each deployment model, three distinct delivery strategies are used, namely: Software as a Service (SaaS), Platform as a Service (PaaS), and Infrastructure as a Service (IaaS). These models' key characteristics include quantifiable service, resource pooling, on-demand self-service, rapid flexibility, and extensive network connectivity, which make up the cloud's core.
This most well-known subset of cloud computing is a SaaS delivery model where apps are hosted and maintained in a data center owned by a service provider, paid for on a subscription basis, and accessed through a web browser and an internet connection.[3]
As insurers are starting to digitalize their businesses, the migration to a Cloud technology platform is perceived as both an upgrade in technological terms and a strategic requirement. Moving to the cloud is a major contribution to the attainment of real-time access to data, unlimited computing capability, and high level of integration with new technologies. While just a very few insurance companies have created a comprehensive cloud strategy, the majority of P&C insurance companies have just begun experimenting with SaaS using horizontal apps like email, HR, and CRM, as well as non-essential or non-profit-making programs, such as test servers. Those that are already utilizing SaaS most frequently use email and office suites, then Web conferencing, project planning management, and customer care and support. Due to a greater degree of uniformity and fewer concerns about data privacy, SaaS implementation for non-core support functions is likely to be of more relevance to P&C insurers. The insurance cloud ecosystem with service models and infrastructure dynamics is depicted in Figure 4.
The Figure 5 focuses on the anticipated cloud deployments by Property and Casualty (P&C) insurers for different vertical-specific software applications. It suggests that the P&C segment is gradually embracing cloud technology as a majority of the companies are still in the planning stage of the cloud adoption. Functions like Agent/Broker Application Portals (43%) and Underwriting Tools (37%) had the most significant planned adoption rates, which mirror the insurers' intention to improve digital engagement and thus, make underwriting more efficient. On the other hand, core operational systems like Billing and Policy Administration revealed a moderate adoption intention (37%) only, thus indicating a gradual but strategic move towards the cloud-based infrastructure. Claims Management, on the other hand, was the lowest in immediate adoption (only 23% planning to use) and had the highest number of insurers with no plans (49%), thus indicating that these companies are reluctant to take the risk of moving their critical claims operations to the cloud.
SaaS use case for P&C insurance industry
According to industry surveys, 67% of insurers currently use SaaS for at least one of their core operations, and deployments have demonstrated an average five-year total cost of ownership savings of 25-30% when compared to on-premise choices. The disintegration has brought about inefficiencies and the average IT expenditure of the insurers is 60-80 percent on the maintenance of the old systems and not in innovation.
In the case of insurers (P&C), SaaS options include analytics, customer portal, insurance administration, and claim handling. These are Commercial Off The Shelf (COTS) products, that are ready-to-use and customizable, that allows insurance businesses to focus on their core business operations with an option to outsource the need for installation, upkeep, or upgrades to the product organization. Further, with the advent of the new pay-per-usage paradigm, this technology made Software as a Service (SaaS) cloud computing dependable, affordable, and above all location agnostic, by offering remote management capabilities. Cloud service providers play a central role in the transformation enabling the insurers to clear the technical debt and divert the IT resources into innovation. The recent industry exploration indicates that the pace at which cloud is being adopted in the insurance industry has drastically increased, and in order to meet the growing demand for digital services, over 70% of insurers are currently putting cloud plans into practice. In essence, SaaS or Software as a Service, when it comes to the insurance industry, is a cloud-based software service catered to the insurance sector only. It represents a method of delivering software whereby a provider hosts the apps remotely and makes them accessible to clients using an Application Programming Interface (API). A P&C insurance SaaS allows insurance companies to carry out their work efficiently, e.g. policy administration, billing, claims management, etc., in most cases, through a downloadable commercial- or enterprise-grade software. The main benefit of this model is its scalability, thus any business whether big or small can adjust their usage according to their needs without having to make a large IT infrastructure investment upfront.[4]
Significant benefits of SaaS P&C insurance software include faster policy issuance and claims processing because of automation and immediate data availability (Table I). It also upgrades data security capabilities to offer better protection from cyber threats. SaaS software can also be a source of improvement in the insurance experience for policyholders through the provision of easy access to their services and information. For insurers, a system that supports a customer-focused approach is advantageous. Additionally, technical developments in a number of fields may assist the insurance company:
Conclusion
By using cloud computing and SaaS, Property and Casualty (P&C) insurance companies are making a big change that can help them to get rid of the problems of old systems and gain more operational agility, scalability, and cost-efficiency. The discoveries of this study indicate that solutions facilitated by the cloud not only make policy administration, claims processing, and customer engagement more efficient but also open the door for insurers to a quick response to the continuous changes of market requirements and regulatory environments. The transition to the new system still has difficulties, even though the advantages such as better collaboration, access to real-time data, less infrastructure costs, and higher flexibility are quite impressive. Challenges in the areas of data privacy, compliance, and system integration are also included in the transition. With the help of cloud and SaaS technologies, insurers can combine legacy and modern systems, embrace hybrid cloud strategies, and put data governance rules into practice to guarantee the infrastructures' flexibility, scalability, and security. Besides, workforce readiness and change management should be considered as the vital factors of successful implementation. Next, quantitative models should be developed to evaluate the financial and operational effects of the SaaS adoption of P&C insurance firms over a certain period. The optimal configurations for the various organizational demands may be found by comparing deployment methods, such as public, private, and hybrid clouds. Additionally, cloud-based solutions can increase predictive analytics, fraud detection, and claims automation through the use of BlockChain, AI, and ML. Insurers will have a road map for achieving a safe, effective, and entirely digital operational environment in the future by investigating these synergies and creating standards for data privacy compliance across nations.
References:
[1] J. Danhel and P. Sosik, “Acquisition Valuation of P&C Insurance Companies,” Casualty Actuar. Soc. Discuss. Pap. Progr., 2004.
[2] NAIC, “Property & Casualty Insurance Industry,” 2020.
[3] R. Nazir, Z. Ahmed, Z. Ahmad, N. Shaikh, A. Laghari, and K. Kumar, “Cloud Computing Applications: A Review,” EAI Endorsed Trans. Cloud Syst., 2020, doi: 10.4108/eai.22-5-2020.164667.
[4] A. Dorri, M. Steger, S. S. Kanhere, and R. Jurdak, “BlockChain: A Distributed Solution to Automotive Security and Privacy,” IEEE Commun. Mag., vol. 55, no. 12, 2017, doi: 10.1109/MCOM.2017.1700879.
