Robin James, insurance practice lead at FusionExperience, addresses some of the reasons why insurers should look to Cloud as a means to cope with increasing regulatory demands.

Financial regulators have always set a framework of good business practice which they see as the foundation for sound business. However, there has been a notable shift in the breadth and depth of this regulatory oversight and regulators are now increasingly demanding that organisations demonstrate that they are complying not only with the letter of the law but also the spirit within which the regulation was created. With the rule makers using increasingly vague language and broad brush examples, it is clear that the days when instructions were precise and easily followed are most definitely gone.

These developments will continue to pose a challenge to the insurance sector in particular, which is set to fall under a particularly strong regulatory microscope. To cater for this, insurance firms need to start employing ‘interpreters’ to help them understand its complex language and to enable them to capture enough data.

This should enable them to produce the information that will help them to demonstrate that they are compliant with the regulator’s wishes. Systems to support regulatory disclosure have to be agile and capable of being configured in hours and days, not months and years. Although this may sound like a tall order, but there is a very real and easy solution that already exists.

By moving towards cloud based architecture, insurance firms will be able to deliver secure, agile, sophisticated solutions that can be rapidly tweaked to meet changing business imperatives. These can range from straight forward measurements right up to a full blown enterprise solution and be based on robust solution sets and secure data repositories, reducing the risk factors reviewed by the regulator.

The cloud is also standards based and this allows for a more sophisticated model of usage. Insurance companies will be able to isolate and select the most appropriate components rather than entire solutions, allowing companies to change components quickly, and to respond efficiently to either business imperatives or regulatory stimulus. Insurance companies that have moved into the cloud have found that it gives back control to the owning organisation in ways that traditional outsourcing has never been able to.

Despite this, the insurance industry has shown itself to be wary of stepping into the unknown underlining reluctance to move into the cloud. However, far from being an ethereal unattainable dream, the cloud has many proven benefits. It is considerably cheaper than running an in-house IT department and cheaper than traditional conventional outsourcing.

The cloud also offers the opportunity to not only outsource infrastructure, but software and other services as well. The cloud will give organisations responsibility in managing their business, an essential requirement if companies want to have any hope of managing risk in an increasingly regulated environment.

By moving into the cloud, insurance companies will be able to be more dynamic and capable of evolving in timescales that have seemed impossible thus far, but will prove vital when faced with more intrusive and sophisticated regulation. This approach to outsourcing IT will allow the insurance industry to take a significant step forward to becoming ready for business in the 21st century.