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By JONATHAN BERR, who has written for national media outlets for more than 15 years.

With cloud computing emerging as the go-to technology for server storage, the recent outage at Amazon's Elastic Compute Cloud in Northern Virginia serves as a reminder of the risks of this still-evolving technology.

Insurers, though, are concerned that cloud networks are taking on too much work.

"They have better security and better systems than they did before," said Kevin Kalinich, network/cyber risk global practice leader for Aon Risk Solutions. He added that the Amazon outage was "definitely a wake-up call" for companies and their boards of directors.

"Their rates for cyber-coverage can do down with expanded coverage," said Kalinich.

Most of the challenges from a risk perspective lie with the cloud providers. Insurers are worried about cloud systems going down and bringing their customers' networks down with them.

Cloud users need to be cautious, experts said.

"The cloud vendors really don't assume much liability coverage in their contracts," said Dena Magyar, vice president at Wells Fargo Insurance Services. "I am concerned that they [cloud users] are going to have a large uninsured loss. I keep knocking on wood ... but I can't see it not happening."

Insurance companies carefully vet the security practices of the cloud providers and maintain lists of companies they think are doing good jobs when it comes to protecting their clients' data. The cloud providers are finding it increasingly difficult to get coverage.

Some insurance carriers are so worried about the problem that they are unwilling to underwrite the cloud providers, said experts. Others are demanding retention payments and coverage exclusions.

"They actually have to shop around and seek multiple service providers," he said, adding that cloud providers have little choice because their customers demand that they have coverage.

Cloud computing is an IT bright spot, according to market researcher Gartner Inc., which recently raised its forecast for global IT spending by 3 percent to $3.6 trillion, from an earlier growth projection of a 2.5 percent.

The popularity of cloud computing is expected to continue to rise in the coming years, even though some companies such as Wells Fargo are taking a cautious approach. As a highly regulated financial institution, San Francisco-based Wells Fargo is reluctant to put sensitive customer data on the cloud. But it does support other uses. Running servers remotely and other efficiencies resulting from using cloud-like services saved Wells Fargo $1 billion, said Scott Dillon, the company's executive vice president and head of technology infrastructure services

"We see the benefits of delivering IT as a service in the ability to increase scalability and availability while reducing operation costs,? said Dillon. ?These attributes of the cloud are here to stay and are part of an important transformation in the technology infrastructure. ... We believe the cloud is here to stay, so as cloud computing technologies advance we will continue to evolve and consider new capabilities as they make sense and meet our needs.

"Given Wells Fargo's scale and high standards for security, public cloud computing may be a ways off for us,? he said. ?There are risks to running systems and critical information from the cloud, and this makes it challenging for a financial institution to incorporate public cloud capabilities while still keeping customer data secure and remaining compliant."

July 24, 2012

Copyright 2012© LRP Publications