Why risk modelling is the fastest growing workload in insurance

In an earlier blog post, we discussed some of the key benefits insurance companies can achieve from running their risk models in the cloud compared to an on-premise infrastructure. From unlimited capacity and increased agility to significantly reduced total cost of ownership, we explained how the cloud is proving an ideal solution for companies looking to gain the capacity they need without spending big money.

Now, we’re going to look at why the cloud is helping to drive what we, at Microsoft, believe is the fastest growing workload in insurance – risk modelling.

In essence, there are four business drivers.

Business before IT

Outside of the CIO’s control, companies sometimes have their own separate IT departments which are set up purely to help manage new and changing business needs. These departments tend to be much more flexible when it comes to adopting new technologies. They put business needs first, and they’re willing to try out alternative options, such as the cloud.

Complying with new rules

The second driver is the regulators. Motivated by some of the major issues we’ve encountered in the financial services industry over the last few years, new standards such as Solvency II, Dodd Frank and the International Financial Reporting Standards mean that insurers are now being asked to run more complex models at an increased frequency. In many instances, they can’t achieve this with their current infrastructure.

An alternative to on-premise IT

To ensure compliance, insurers are finding that they have no choice but to expand their infrastructure or find new ways of gaining the capacity they need to run these complex models. Without making huge upfront investments, many are looking to solutions beyond their on-premise infrastructure to be able to react much faster.

On average, it can take insurers anything from six to nine months to expand their on-premise infrastructure. With the cloud, however, they can spin up a new environment in a matter of minutes and satisfy their need with an unlimited amount of resource.

Particularly in the case of predictive modelling, which works by taking a larger calculation and breaking it down into a set of distinct parallel calculations, the cloud is proving transformational. What it allows you to do is transfer these calculations over a larger number of cores so that they can all be done at the same time – and fast.

I’ve mentioned it before, but if we took all the life insurance policies in the world and we built a model with 10,000 outerloops and 1,000 interloops, it would take 800 years to run those calculations against a single core. However, if you split that workload over 50,000 cores it would take just under six days.

The cloud costs less too. Alongside our partners, we’ve been developing TCO calculators so our customers can understand what it’s costing them to run their IT today and what they would save if they were to move to the cloud. We’ve found that a business can expect to save around 60% by using the cloud compared to managing an on-premise infrastructure.

Getting over security misconceptions

Because the vast majority of risk models don’t use personal identifiable information (PII), the risk of losing such valuable, sensitive data is already significantly reduced. In fact, none of the information in a calculation should give anybody a competitive advantage should they, in a rare case, actually gain access to your computation.

Of course, that doesn’t mean that you can afford to take any risks. In an industry where companies value and evaluate risk daily, it’s natural for them to look at the risk of doing these types of workloads in the cloud. They may ask themselves: is the cloud secure; does it meet regulatory requirements; can it satisfy the needs of my users; and is it equivalent to or better than what I can provide in house?

And the answer is yes.

At Microsoft, we take security very seriously. Trust is key to customers committing to a platform and a new way of doing business. We work with the regulators, we deal with compliance and we make sure that we meet all of the appropriate security standards. You can read more about our practices by visiting the Microsoft Azure Trust Center, which provides detailed security, privacy, and compliance information about our cloud services to help customers make their own regulatory assessments.

In most instances what companies find is that the cloud provider has more stringent security standards and requirements than their own data centre.

Early adopters

UK insurance group Phoenix is just one of many companies already taking advantage of the Microsoft cloud to achieve greater agility and scalability than ever before. By choosing to consolidate all of its risk functions on one SaaS platform, the company is seeing great benefits relating to collaboration, cost and overall efficiencies. Not to mention that it’s getting better results – and faster.

Other insurance providers have been working with us to increase the capacity of their on-premise grid by bursting into Azure. Again, they’re achieving reduced calculation times, increased efficiency and lower costs.

Alongside our partners, we’re seeing a huge rise in the number of customers investigating the possibilities of the cloud to manage their risk workloads. To find out how we can help your business, e-mail me mentioning this blog, and we’ll take it from there.