Much has been written about the impact of private and public cloud environments on the business of insurance. Everything from analytic workloads necessary to ensure compliance with capital solvency regulations, CRM, and “Platform as a Service” seem to be on the agenda.
However, despite the abundance of private and public cloud service availability, many insurers are still struggling to understand where, when, and which applications are good candidates for cloud platforms; and then how to modernise those applications in order to take maximum advantage of cloud economics.
Key benefits of cloud economics including capital expenditure avoidance, elastic “pay-as-you-go” capacity, and the general price competition between cloud service providers; make setting the right foundation – one that enables the insurer to take advantage of pricing improvements between providers, over time – a critical element of an organisation’s journey to cloud enablement.
Stratification of applications
A few key steps are emerging as insurance CIOs look toward the most optimal approach to moving into an environment of ubiquitous infrastructure.
First, stratification of applications based on workload characteristics. In this step, insurers evaluate volatility and rate of change in applications, the interaction these applications have with other enterprise applications, and the likelihood that “burst” capacity will be needed either during product launch, sales campaigns; or in some cases, local or regional disasters.
By classifying systems along an easy-to-understand schema, insurers are better positioned to prioritise application migration to cloud services.
This schema organises applications into one of four tiers. Common tier characteristics serve to define common patterns of remediation or modernisation – with the goal of creating cloud-optimised applications suitable not only for cloud deployment, but also for extracting maximum value from cloud economics.
Systems of engagement
We typically see “systems of engagement” as having the highest level of functional or content churn, as insurers race to drive new, meaningful content into the market, or work to deploy intelligent systems capable of adapting to evolving user preferences – and improving scores for user experience.
Systems of analytics
This is closely linked to systems of engagement. It is for those insurers who have the infrastructure and systems to dynamically use analytic engines or services, tending to scale logarithmically (in terms of capacity requirements) as user interaction scales linearly (more events, more complexity quadruples the analytic data points even as the interaction rate merely doubles).
Systems of record
Those applications responsible for long-term stewardship of customer, contract, financial, and claims data, tend to be less volatile, and also are more likely to be scrutinised by regulators for compliance with data protection and data placement regulations.
With decades of relatively non-volatile historical data under management, these applications are often “late to the game” with respect to migration to cloud environments (often the underlying technology inhibits cloud adoption regardless of insurer intent).
Finally, those applications that drive human resources, finance, regulatory reporting, correspondence generation, and composite risk concentration evaluation (as with reinsurance), are frequently considered too tightly integrated with each other and with other applications (typically systems of record) to benefit from migration to cloud services.
Cloud migration strategies
With this framework in mind, one can propose several different, but equally viable strategies for migrating any tier of application to cloud services.
The difference is typically in the rationale or driver for cloud adoption, and then in the method or scope of remediation required to optimise the economic value (business case) associated with shifting from in-house capacity to cloud services.
For example, in the “systems of interaction” tier, the availability of instantly scalable capacity required during regional disasters (consider first notice of loss systems associated with typhoons, earthquakes, or man-made disasters) is a compelling argument to adapt these systems to cloud architectural patterns, and to enable rapid scaling that ensures the application is designed to enable the use of scale-out capacity.
Evaluating the design of these applications, and ensuring that sudden increases in transactional volume are engineered into the application design is a crucial skill for insurance technology managers to master.
Similarly, in a “mobile-first” world where user experience is king (insurers should take a lesson from the evolution of mobile-first retail in this regard), the intersection of real-time artificial intelligence with dynamic content presentment creates a highly unpredictable data flow and presentment environment.
Not only do insurers have to grapple with unpredictable compute requirements, they also have to design for huge shifts in data flow into and out of these systems.
Many insurers are just developing the internal talent necessary to design and optimise these kinds of systems – experimenting and then deploying into cloud platforms is a good use case for this emerging class of smart user experience systems.
In all cases, the move from traditional, “owned” (or outsourced) infrastructure to cloud services warrants a close look at the design of target applications. The design review, leading to a classification of “cloud-enabled”, or “cloud-optimised”, can help decision-makers prioritise investment, and more clearly articulate the business case for undertaking a move to cloud services and cloud economics.
Cloud anti-patterns (an anti-pattern in this context is a design element that solves for a given problem, but, in the context of a changing external environment can be seen to solve the problem in exactly the wrong way) abound in pre-cloud application architectures. In order to take full advantage of the technical and economic benefits of cloud services, some amount of application modernisation or remediation is essential.
Within insurance applications, several anti-patterns stand out as typical examples of application design that worked well in the era of dedicated, expensive, physical hardware, but are less appropriate for elastic, ubiquitous, virtual platforms.
Application “forking”, or the spawning of multiple compute threads under application control represents the most common cloud anti-pattern we have seen in the insurance industry.
In this anti-pattern, serial elements of the system are executed using a single “core” or system processor. However, when a complex task is presented (example: the “rating” of a complex risk after iterative collection of risk data), it was common (in the physical infrastructure era) for programmers to “fork” or diverge the logic paths so that many parallel actions could be executed at one time.
In terms of resource reservation – you pay for what you reserve – this anti-pattern requires a high resource configuration in order to “have enough” capacity to complete the process end-to-end, including the limited time when it requires 2, 4, or 8x the “baseline” capacity. When you pay for what you reserve, this pattern clearly adds cost to the cloud services construct.
Other similar anti-patterns include inefficient use of cache (internal memory used to store data in order to avoid relatively more expensive input/output actions), resulting in the need to reserve large amounts of memory in order to assure availability as and when it is required by the application.
Remediation of cloud anti-patterns
In these and other cases of application design not optimised for cloud services, a key initial step toward becoming a cloud optimised enterprise must be the examination and remediation of these and other cloud anti-patterns.
Correcting these types of design problems can have material, positive benefit on the business case for adopting cloud services, and on the financial rewards reaped by deploying cloud-ready (as opposed to simply “virtualised”) applications.
Taken together, a strategy for application classification, plus insight into application modernisation targeting cloud optimised design, are two key steps insurers must take on the journey to becoming cloud empowered.
The CIOs who get this right are the ones most likely to lead the successful transformation of their organisations to a cloud-empowered environment.
Mr Dan Himmerich is Senior Principal and Insurance Industry Strategist at CSC.