Is Cloud Insurance Worth It?

It will come as a surprise to no one that the insurance industry likes taking a risk about as much as a politician likes telling the truth, yet it can't be denied that certain risks bring with them the promise of increased profits and/or decreased costs. In fact, shelling out less money every year is a very appealing prospect, even to insurers.

By Ara Trembly

Take the whole question of cloud technology, for example. One of the key problems in our industry (and many others as well) is the cost of keeping and preserving the huge volumes of data we deal with. The scary fact is that the amount of data we produce is growing at an alarming rate and it may soon, in many cases, overwhelm our ability to store it. Add to this the fact that as a highly regulated industry, we are required to retain just about every scrap of data we take in -- and to be able to easily access such data -- and the situation becomes particularly dire.

One solution being bandied about is to store our excess data in the cloud -- either public or private. Cloud technology provides off-site storage of massive amounts of data without the cost associated with buying new servers or paying for more expensive storage technologies, like solid-state. This is an obvious money saver, but it has one little problem -- its level of security is questionable. That, of course, raises red flags in an industry that thrives on confidential data remaining secure.

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At last year's Insurance Accounting & Systems Association Inc. conference, a panel of IT experts discussed the question of cloud technology in insurance, and the general consensus was that insurers are nervous about it (as they are about most new technologies).

Now a recent survey from The Cloud Industry Forum has confirmed that data security is indeed the most significant concern users have when it comes to moving to the cloud. As reported on ITPro, the survey said that 62 percent of its respondents cited security as a key issue with cloud technology. Data privacy was also a concern, being mentioned by 55 percent of respondents.

Certainly, these two bumps in the road will be more than enough to stop many insurers and brokers from trusting confidential data to the cloud. Still, we are stuck between a rock and a hard place when it comes to data storage. Insurers are required to keep all of the data that pertains -- or may pertain -- to insureds and their coverages, but with the economy continuing to suck wind and insurance markets in a precarious position, investing more revenue in storage may be a difficult financial decision.

Some insurers are forestalling the inevitable by trying to store "non-essential" data in the cloud, but even that strategy opens up new risks. After all, enterprises have been cracked by going in through unexpected "non-essential" systems before.

Sooner or later, each insurance enterprise must decide for itself how much risk they will tolerate in terms of data storage in the cloud. The short-term financial case is compelling, but the longer-term risks of publically-exposed data breaches and consequent lawsuits loom. Either strategy is a gamble, and insurers don't have the option of just folding their cards and walking away from this game.

Ara Trembly, founder of Ara Trembly, The Tech Consultant (aratremblytechnology.com), is a widely known and highly experienced consultant, journalist and speaker in the technology field, notably for insurance and financial services audiences. He is also the creator and author of The Rogue Guru Blog. He can be reached at riskletters@lrp.com.

March 1, 2012

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