#01 The Case for the Cloud

Sapiens Insurance 360

Episode 1 | The Case for the Cloud

Listen as Graham Gordon, Sapiens’ Director of Product Strategy P&C , EMEA, presents the case for the cloud in today’s insurance markets. What are some of the cloud’s critical services and drawbacks, and what is driving cloud adoption? Tune in as Graham answers these questions and more.

Patrick Nobbs: Hello, welcome to our very first edition of the Sapiens Insurance 360 podcast. I'm your host, Patrick Nobbs, and I lead the marketing efforts here at Sapiens EMEA and APAC, so it is with great pleasure that I can welcome all our listeners to this inaugural edition of our podcast program. This is where we discuss the latest news, trends, and issues from right across the insurance solutions and technology spectrum. For our very first segment, we have an exceptional guest, Graham Gordon, who is Sapiens’ Product and Strategy Director for Property and Casualty. Graham has over 20 years of broad experience in a lot of different roles in the business arena, including sales support and enablement strategy marketing. Prior to Sapiens, he was at Lexus Nexus Risk on the data product side of their business, and he's a graduate of Cambridge University's executive MBA program. He's been at Sapiens now for two and a half years and leading our P&C product strategy team. Today, we'll be discussing “The Case for the Cloud.” So, Graham, a very big welcome to the program and let's discuss the case for the cloud with you.

Graham Gordon: Thank you for the intro, and glad to participate. I'm looking forward to this. It's exciting. Between us, we'll try and be thought provoking. We'll poke at this topic a little bit and hopefully make it an interesting listen.

Patrick Nobbs: Well, let's get started. So it's only really been 10 years since cloud services began to take shape with companies like Amazon and Salesforce ultimately making their mark. Amazon Web Services launched in 2002, and this was a pivotal moment in the history of cloud computing, offering a suite of infrastructure services that would become the backbone of countless applications and websites. So there are other considerations if those are the real tangible benefits to the cloud. Can you outline this, Graham, and if there are any drawbacks?

Graham Gordon: It's a landscape. Let's always start with the benefits and, I doubt there's a CTO on the planet that doesn't understand this, but let's recap them. My top five, a bit subjective, probably. We'll look at scalability. So cloud platforms allow you to scale the resource up and down based on the needs. You easily add computing power storage, you pay for what you use in that kind of world. You know, the cost of doing so versus standing up a whole environment is significant. Everybody wants to grow. So cloud gives you this ability to grow. So cost savings and it's cost savings or at least capital expenditure changes, from capex to opex. Cloud computing really does eliminate the need for upfront hardware and investment, infrastructure investment. And what's very interesting perhaps for smaller insurance companies or MGAs, is you've got access to enterprise grade technology no matter how big you are. And it's a real technology level for these smaller companies. So if you're switching this from capex to opex, the question for the insurance is, where are sort of across the business can that capex be used? So a really, really strong kind of hidden component of cloud computing there. And then the usual stuff, you know, reliability and availability. Where are we today in 2023? It's all real time, it's all digitalized. Any downtime costs are significant in terms of customers wanting to buy online or file claims, et cetera. So all the infrastructure sits behind it. The multi-backup systems, disaster recovery measures, and then things like security, you know, cloud providers are investing more than any other organization in the world on security measures to protect the customer data that they hold. Think of all the engineers working on this first as what an individual company can do. [An] underrated benefit, particularly in this, you know, modern cyber-attack environment we operate in. And then from our customer's perspective, which I think is number five, this automatic update and maintenance cloud technology is all about accessing the latest features, performance improvements, security enhancements without the need to manage these large upgrade programs. So no more upgrades, ever. It’s a nice concept, but we call this evergreen products and services and insurance. So this cloud enables us to have this constant flow of, of innovation and new features, new functions, without actually having to go through these massive migration programs. I forgot number six, data in the insights analytics. Cloud computing enables businesses to collect, store, and analyze vast amounts of data, perhaps more than we've ever seen before or certainly in my lifetime, anyway. And these cloud-based analytics tools, the machine learning services, they offer these, new powerful capabilities for driving these insights across the business. You know, data-driven, decision-making, innovation, automation, all the buzzwords that are going on, you know, this top-five, top-six is what the industry's looking at [at] the moment. These are the considerations. These are the things that are driving cloud adoption.

Patrick Nobbs: Thanks Graham. That's an excellent insight. Plenty for the audience to consider there, but those are the real tangible benefits of cloud. Can you outline any drawbacks?

Graham Gordon: I think for most of us when we think of the cloud, we think of this kind of delivery aspect of it. That's the UX, you know, that's what we're actually integrating with or, or touching or we can see it's tangible. But the service is delivered to the end user, under the surface is what it counts. Cybersecurity, business continuity, scalability, pay for use, efficiency, that long list we talked about in the top five. So any drawbacks? It's a hard one. You know, think of all these teams at Microsoft, Amazon, Oracle, Google, and there's probably other cloud providers. The security, the toolkits they're making available for deployment. It's a real force multiplier for a CTO in their organization. It's a real force multiplier for us. So the drawbacks, yes, there are some, we'll discuss them in a moment, but I think these are largely outweighed by the benefits and largely perhaps a bit of an understatement. So here's the thing, right? Cloud is almost hands-off. You're storing data, you're storing applications in the cloud, you're interacting with them, and you're trusting that third-party provider with all that sensitive information. You've got limited control and visibility over it. When utilizing cloud services, the CTO maybe has no control of the underlying infrastructure and systems that sit behind it. And that's quite a big area of, of trust. The cloud provider manages the hardware, software, security updates, the maintenance, et cetera. The application, the development tools and this lack of control. Control is maybe not the best word, but this lack of visibility can be a concern for organizations particularly with specific regulatory or compliance requirements. So this is a big one for the industry at the moment. It's about vendor lock-in. It's about moving data and applications to the cloud [that] may result in you being locked into this vendor one time and all these trust issues, I have to pass my world onto a third party. Now we, we do this once, right? So [I] doubt very much in our working generation, we're going to be doing this twice. And these, how big these decisions are. Now, how long do we have until retirement? But we're placing--this is the fundamental drawback--we are placing a lot of trust in three or four large American organizations. It's hard to predict the future. Are these guys going to be like Uber? Do they undercut everything? Drive competitors out of business and raise prices back up again? And with vendor lock-in going to two or three cloud providers, you have a choice of one, what's the long-term outlook on it? How do these cost increase over time? Are they going to be inevitable? How can we pass these on to consumers and customers? I, you know, I don't know, we'll see. This is where it comes full circle down to, you know, some of the things that are going on in the broader environments. So, you know, how do European legislators view this? That's going to be important. I'm not sure how it goes. We've seen in other areas, France, Germany, Italy, maybe the EU commission themselves, there's a deep suspicion like there is for the insurance company of handing the keys of the world over to two or three large organizations. Controversially, , does it matter? I honestly don't think so, because the cloud providers aren't stupid. They want to be partners with organizations like us. They want to showcase their technology, their toolkits, and they want us to use it to benefit our customers and our customers’ customers, which are the consumers or businesses themselves. So the drawbacks, this means that I want to focus on talking about the benefits we can let someone else figure out. There's, there's big things out the EU will be play a, a greater role in global tech governance 2023. We've seen this already. So, you know, fast forward to it. Let's focus on what cloud does. Let's not worry about the big macro issues that can kind of get in the way of some of these decisions that companies are making.

Patrick Nobbs: So one of the things I just wanted to pull up on there, you talked of, there seems to be a perception that Europe lags behind the U.S. What do you think of that?

Graham Gordon: Hardly, it's the opposite. So what do I mean by that? For sure, cloud is dominated by the U.S., Microsoft, AWS, Salesforce, Oracle, Google, a couple of others. The U.S. has the advantage of scale, access to investment capital. The scale is huge to a single European country or any country maybe outside of India and China. But the major differences between the U.S. and Europe, one phrase, GDPR. So when I look at what's happening on the technology side, sure there's leadership there and significant leadership because of the scale issues we just talked about. But when I look at things like data protection, privacy regulation, you know, Europe really has established great data protection regulations and GDPR is one of those. The Digital Services Act that came in last year [was] very, very important. There's probably others that I'm not across that are coming through. So that kind of European aspect, which is all about cloud standards certifications, Europe has been really proactive in establishing these, the certifications required, the interoperability, the transparency of how the data's used. You've got the cloud security allowance, the star certification, euro cloud, there's a whole long list of bodies there that provide independent assessments of cloud provider security controls practices. They help organizations make informed choices. So back to our CTO, I don't think there's many fans of GDPR privacy legislation, the CTO office, you know, [that] think about [how] this defines the potential risks, the worry of getting it wrong and damn, you could sink your organization. But if we take a step back and say what has Europe done versus the U.S., well, look at the big picture. The majority of these regulations are to protect the consumer. And over here, we have led the way and it's become the kind of benchmark for other organizations, other countries. And I kind of like that because guess what? I'm a consumer and I'm an insurance customer myself. So I like, I like the approach. You've got the technology approach. You've also got the frameworks that have been used by other countries as well. So it's not a case of the USA leading everything.

Patrick Nobbs: Just taking another angle, what is the true impact on cloud from an insurance perspective?

Graham Gordon: This is an interesting one. So it's another interesting angle, and I don't want to be flippant when I say this. The cloud is now table stakes. Cloud clients of ours just assume that the cloud exists. It's a hygiene factor. Any new business software or provision they buy from us will be cloud delivered, and it's a massive generalized statement, but at this point in time, no CTO would not have cloud technology. It really does equalize the playing field. So the true impact on insurance, what this looks like is a future that systems and technology, the technology stack of an insurance company, may no longer be a competitive advantage. So think about companies that got first of online code and buy or digital claim filing and you know, real deep ecosystem. All of those kinds of real-time seamless services that are easier or easier on paper to deliver in the cloud. All of that opportunity to harness the power of insurtech, anyone can do that now, in theory. So that kind of technology competitive advantage has gone. And I think that's the true impact on, on insurance. And the role and skill of the organizations is now how do you use these network of services available? How do you use digital cloud deep, deep third-party technology integrations for the insurtech environment and convert all of that into consumer or end customer value? I think that's going to be the critical factor and that's going to be the true impact of, of the cloud, the skill set of the CTO and the CTO's clarity of vision to deliver this into the business and not just be the, the apex of the technical architect discussions. That's a really interesting point.

Patrick Nobbs: So that is an interesting point. Can you expand a bit more on that?

Graham Gordon: So read Gartner or Celent. For years, they've been speaking of the role of the CTO in an insurance organization and let's say, you know 90% of their time is spent keeping the lights on. So what does that 10% of the time where they've got same capacity to do something different, what does that look like? Well, the technology goes to the business. We capture all the requirements of the business, we write it all down, we document the process, we create nice diagrams, we do agile or waterfall development, something or other. And then we tell them it's too difficult, we'll take years and we go back to keeping the lights on. And I think the listeners out there will kind of empathize with that a little bit. But here's the thing: with cloud, you release that keeping the lights on time. So how do you use that time today? And the current environment we're operating in, it's the role of the CTO now to educate the business to the art of the possible. That role is flipped and technology now leads, you know, forget about taking requirements, look what's happening in claims prevention across that kind of cloud-enabled ecosystem. How do you then convert that to sales and marketing message? How does access to near real-time, real-world data, the new sources of, of cloud-enabled data enrichment, how does that impact underwriting? So the cloud is really creating space for the CTO and their organization to be really, really creative. And I think that's a much more fulfilling role than being a system janitor. It's really exciting. Something I see our customers lighting up about, you know, proper leadership roles for the CTO, the CIO, and the organizations. You know, look at the biggest tech players we've mentioned, some of them already as the cloud providers, but you know, guess where the CEOs are coming from? It's product. It's not finance, it's not sales and marketing or operations, but the next leadership is coming from the product and that's because these guys now have the vision of taking technology and doing something with it.

Patrick Nobbs: Excellent, excellent. Thank you. So how will the cloud ecosystem continue to evolve?

Graham Gordon: This one's a little bit more complicated to answer. So you know, two areas. I think for most insurers, it will be a hybrid future. You know, we're seeing this mix of legacy on-prem specific services or designed for specific services. We're seeing those mixed with, you know, new cloud-based deployments for some technology solutions. And I think that will continue for a number of years. And what this effectively means is you've got many, many data and application silos. Issue number one. Issue number two coupled to this or coupled to that, is the well-documented lack of human capital out there to manage it. I remember speaking at the conference last year, one of the largest insurers outside of Europe, their CTO said that he had in the region of 250 software services. 250! And his biggest problem was identifying what they all do, let alone some consolidation, cloud-based framework. So what that effectively means is there's going to be increased investment in cloud data management and design. And the industry calls this data fabric. It's like a net that goes across many multiple systems and data lakes and it's looking to integrate, connect many of those silos, multiple data points, you know, these kind of linear services and provided by the traditional analytics and BI tools and just say, hey, this data fabric is the way of connecting all of these so we can do something with it. And then finally, linked to that, it's just the use of AI to understand what's being used, your search and understand these massive unstructured data sets where they haven't got metadata, the historical information, and inject this into, you know, where to use it better, cloud accelerates or perhaps as the ultimate enabler for this. So the last bit is this use of the digital twin. This is a digital representation of the physical world around us. I always like to say to our customers, you know, remember insurance is a massive consumer of compliant data and if we understand this from a foundational perspective, then we can figure out how to use the data better. [The] cloud's going to enable this. If we understand it from a foundational perspective, we can figure out how to use it better.

Patrick Nobbs: Fantastic. That's really interesting. Uh, I think what I'd like to come to next really, so if that's the future of the cloud, where's it going? What do you see are the future possibilities?

Graham Gordon: Let's go, let's go back to that digital twin concept because we can think about that for a moment. It’s easy to understand it; let's not worry about the technology stack. The cloud providers are solving that problem for us. It’s a weird statement. There's a lot of truth in it. I did say it was hands off at the start. It's a digital twin. Everything you can know about a person, a business, an asset, a building, a market, a location, an environment, all the physical attributes that are connected or collected, how they're normalized and presented back into the insurance value chain at point of need. How will these physical things interact with each other and the environment around them? And then obviously, um, what the propensity is for something to go wrong. And we can do that based on the historical real-view mirror. Or we can use real-time analysis or we can use forward prediction loads of techniques for this. And if it does go wrong, a claim or the asserted evidence payment management. So if you think about that in terms of, you know, the largest compliant data sets in the world and PS, it is the greatest use, could you look at the, what the analysts say are the best users of data or cloud, cloud and data? I'm going to use those two terms and aligning to each other, alongside each other. Facebook, Instagram, Kinder, and in fact the top-20 services that you, you know, they, they put as the benchmark for cloud delivered solutions. Insurance isn't mentioned once. And what does insurance do? It does more than serve advertising protects consumers. That's companies take risks without, you know, knowing that something goes wrong, the insurance company has got their back. So this whole weaving these things together, the data fabric, the cloud delivery, the security, the compliance, the digital twin, um, clouds enabling all of these things and we're able to harness the power of it and we're able to do this to service our customers and their customers. It's as broad as your imagination. So I told you it was exciting at the start!

Patrick Nobbs: And the technology landscape? What technologies are coming down the line do you think?

Graham Gordon: So this is where you need a top computer science expert! Maybe not me who's hasn't just graduated last month or something because that's how fast things are moving. But as the Internet of things, it continues to expand. There's a growing need for the computing resource to be closer to the edge of the network. So what do I mean by that? This is all-around reducing latency. We know real-time exchange of data. So if we say in an insurance environment, we want to use more and more sensors for prevention or we want to use more and more home sensors or collision sensors for real-time ethanol, we want to understand how to take predictive, uh, preventative action. And we want to understand how we can reduce the cost from mass market deployments of those. The other one, services computing, this is kind of like, um, function as a service. And what this does, it allows the developers to focus on writing code without the need to manage worry or even think about the capability of the tech stack. And then finally, I guess you can't do any sort of podcast or any sort of presentation nowadays about saying this. And you've all seen the Google product, AI, AI, AI, artificial intelligence, machine learning, you know, cloud platforms. They're already offering a lot of this, um, AI and machine learning services, the powerful algorithms and models without the extensive experience required to use them. And we use a lot of them across the insurance value chain at the moment. But the future of cloud is going to be a lot more around how you integrate the AI in, in these machine learning capacities and how you enable the business to harness the potential of that data and the analytics. The biggest area of impact? People like me and you, I don't need to understand Python anymore. I could just type a prompt and let the machine do its thing and that's transformational.

Patrick Nobbs: Yeah, totally agree. Finally, wrapping all of this up, bringing it closer to home, what trends are you seeing across your own customer base?

Graham Gordon: This is another hard one. You know, we've got 600 Sapiens, got 600 old insurance companies around the world, and I have to be careful how I phrase this, but I think somewhere, um, they're all somewhere toward the full cloud journey. We've got approximately a quarter that we, or full cloud at the moment, but there's multiple considerations. Country-specific legislation, um, a generic trend could be hard to pin down. Other than that, other than one simple statement, everyone's headed in this direction. What I have noticed is a change in attitude. So like any business, you know, we'll respond to RFIs, bits tenders and, and go through new business processes. And if I went back two or three years, the tech stack section and the technology used section of the RFY was something like a million questions at a really deep dive. Now it feels like a little bit more generic, here, Sapiens, you provide the technology, the tech stack, you're the cloud partner, the managed services is your choice. You know, you provide the service to me, take these problems away from me. And I mentioned hands-off a bit earlier on, that's actually what I mean by it. So think about this now, and this is the big trend. The focus is not now on the technology stack the product, but on the service and the solution. And, the CTOs that we deal with, they're focused on value delivery for the business, compliance and doing the right thing for their customers in terms of, you know, the data management side of it and they’re trusting providers like us with the tech stack and the managed cloud services. So it's proper, proper partnerships. You know, they don't want to be focused on this management maintenance of self-hosted hybrid or a spaghetti bowl type of mix of environments. And I think, you know, the attitude switch and that change in attitude is a, is a great attitude to have.

Patrick Nobbs: Thank you Graham for helping us inaugurate our Sapiens Insurance 360 podcast series.

Graham Gordon: No, thank you.

Patrick Nobbs: And thank you to everybody for listening. We've got more coming, so be sure to tune in next time. If you have a comment or would like to follow us on social media, please do so and we’ll see you next time.

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