Host with the most the cloud hosts the IT you want; it also offers a host of knock-on benefits. Aristides Zenonos describes the key choices, and the latest developments. <\/p>\n
The concept of digital transformation has gained significant attention recently. It involves integrating digital technologies across an organisations operations, reshaping how they deliver value to customers, optimise internal processes and maintain competitiveness. <\/p>\n
One essential aspect of it is the migration of data from traditional storage systems to a centralised data lake that is hosted on the cloud, while leveraging the powerful processing capabilities offered by cloud platforms. This opens up opportunities for data-driven solutions and the optimisation of business processes, enabling organisations to modernise their systems and adopt new software applications. <\/p>\n
In the actuarial sector, motor and health insurance stand out for their handling of substantial data volumes. Today, as insurers seek enhanced precision, flexibility and efficiency from their digital tools and ecosystems, cloud computing is redefining the actuarial profession and enabling a wealth of new possibilities. <\/p>\n
What are the definitions? <\/p>\n
Cloud environments encompass the flexible provision of computing power, databases, storage, applications and other IT resources through the internet; delivery of these services is referred to as cloud computing. An on-premises environment involves the deployment of resources within an organisations internal IT infrastructure. <\/p>\n
In simpler terms, on-premises refers to the physical servers and infrastructure on an organisations literal site, while the cloud refers to remote resources that are managed by a cloud provider somewhere else. <\/p>\n
The three major players in cloud computing are Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform (GCP), which currently have market shares of around 32%, 23% and 10% respectively. <\/p>\n
Cloud computing is redefining the actuarial profession and enabling new possibilities <\/p>\n
Control <\/p>\n
On-premises environments give organisations complete control, ensuring the infrastructure is self-contained and eliminating the need for third-party involvement. This offers a sense of security and mitigates issues around internet connectivity or remote servers. They can also be advantageous in situations where organisations rely on legacy systems that are particularly difficult to migrate to the cloud. <\/p>\n
Cloud environments obviously offer less control, as they rely on third-party providers. One significant advantage, though, is the flexibility. There are three main categories of cloud services: Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (SaaS). <\/p>\n
IaaS essentially forms the foundation, providing the building blocks for network access, computing power and data storage. It offers maximum flexibility and control over IT resources, which can be tailored to an organisations needs. <\/p>\n
PaaS is in the next level up. It removes the burden of overseeing the underlying infrastructure, enabling users to develop and manage applications without worrying about operating-system updates or hardware maintenance. Fully managed services such as data warehousing and machine learning modelling options fall under PaaS, such as AWS Redshift or GCP BigQuery and AWS SageMaker and GCP Vertex AI. <\/p>\n
At the top is SaaS, which offers complete, ready-to-use applications that eliminate the need for installation, configuration or maintenance on users own systems. With SaaS, users can directly access fully functional cloud-based products, such as Gmail and Google Drive, without concerns about the underlying infrastructure. <\/p>\n
By leveraging different cloud service models, particularly SaaS, end users can direct their attention to their primary tasks and actuaries can change the way they deliver value to clients. They can exploit machine learning and artificial intelligence (AI) to achieve higher accuracy in reserving, ratemaking, pricing and capital modelling. By analysing new data points, actuaries could address changing dynamics in life and pensions and understand emerging risks such as ESG (environmental, social and governance) and even AI itself. <\/p>\n
Deployment <\/p>\n
Rapid deployment is essential for meeting user expectations in todays competitive market, making it critical when comparing environments. A benefit of cloud computing is its speed and agility. With cloud resources instantly available, they can be accessible to practitioners in just minutes. <\/p>\n
On-premises environments, on the other hand, must be configured and maintained by the organisation so that they are accessible for practitioners. These set-ups often need more time, due to having to configure their own systems. <\/p>\n
Cloud solutions excel at speed; data-driven solutions can be effortlessly deployed in multiple regions worldwide with just a few clicks, allowing organisations to deliver solutions with low latency and back-up options. However, its important to note that on-premises environments can offer lower latency and faster response times in some cases, especially when cloud providers do not host resources in locations close to end-users. <\/p>\n
Cost <\/p>\n
Cost is where the two environments show significant differences. Cloud computing offers a pay as you go model, which provides flexibility and cost optimisation. On-premises infrastructure, meanwhile, often involves a significant upfront cost but provides long-term cost predictability. Organisations can plan their expenses more accurately over time without worrying about things like potential price increases. <\/p>\n
One of cloud computings key advantages is its economy of scale. Cloud providers aggregate the usage of hundreds of thousands of customers, enabling them to offer lower prices. On-premises environments typically serve a single organisation, limiting the potential for cost optimisation through shared resources. <\/p>\n
By adopting cloud computing, organisations can shift their focus away from managing and maintaining costly data centres and towards core business projects. This allows them to allocate resources to customer-centric initiatives and strategic endeavours, reducing overheads associated with physical infrastructure management. <\/p>\n
Security <\/p>\n
Many organisations place their trust in on-premises environments because the data remains on local machines, providing a sense of control and ownership. This is particularly crucial for industries with strict regulatory requirements or sensitive data that cannot be stored or processed in a public cloud environment. Industries such as healthcare and finance often have strict compliance and security requirements that necessitate maintaining data this way. <\/p>\n
However, cloud providers extensive network of data centres ensures high availability, redundancy and disaster-recovery capabilities, which can be beneficial in ensuring business continuity. In addition, cloud providers nowadays follow strict protocols such as encryption, user and group permissions, and firewall components to ensure the safety of their data against malicious attacks. <\/p>\n
Its true that an on-premises environment without direct internet connectivity provides more data security than the cloud. However, such isolated on-premises systems may lack a cloud-based solutions flexibility, scalability and collaborative features. Using the power of the cloud and tools such as version control and shared platforms promotes collaboration among staff. <\/p>\n
In recent years, new approaches such as federated learning have emerged to foster collaboration while addressing data privacy concerns. Federated learning is a distributed method for training machine learning models; it operates in a decentralised manner, eliminating the need to transfer data from client devices to central servers. Cloud solutions also provide easily configurable functionalities and user permissions to meet diverse actuarial workflow needs, ensuring compliance with global insurance industry regulations such as Solvency II and IFRS 17. <\/p>\n
Hybrid solutions <\/p>\n
All this said, there is another option: the hybrid cloud. This offers businesses the ability to host resources both locally and remotely. Simply put, it combines different computing environments to support application deployment and data management. It allows organisations to leverage the benefits of both on-premises infrastructure and cloud computing. <\/p>\n
This approach is widely adopted because it provides flexibility and enables businesses to continue using their existing on-premises services while taking advantage of the possibilities offered by cloud computing. It offers a balance between control, security and scalability, allowing organisations to optimise their own IT infrastructure. <\/p>\n
Positioning for success <\/p>\n
Cloud computing has emerged as a leading force that is driving innovation. To stay competitive, an increasing number of companies are embracing digital transformation, and actuarial professionals are recognising the role of data readiness in leveraging the potential of data-driven solutions and AI. They understand that access to high-quality and abundant data is essential for optimising business processes. <\/p>\n
Deciding between on-premise or cloud environments requires a thorough understanding of your organisations circumstances. By considering factors such as data sensitivity, budget and resource requirements, businesses can make an informed choice. The goal is to create an infrastructure that supports operations, maximises efficiency, and positions the business for success in the technological era. <\/p>\n
Aristides Zenonos is a senior data scientist <\/p>\n
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