Back to business: The value of Azure for risk modelling
In risk modelling, speed and capacity are the keys to business value. The faster you can run your models and the more scenarios you run within them, the more accurate your models will be. But there is no value in managing an infrastructure to deliver capacity that you only use sometimes – and that’s where the cloud can make a real difference.
Limitless capacity
Look at it this way: if you took all the life insurance policies in the world and you ran models against them on one core, it would take 800 years for you to get a results set. But if you translated that to 50,000 cores and broke the model down into discrete parallel processes, it would be finished in two hours. Microsoft Azure enables that level of performance, either through a software-as-a service model with all your software and data in the cloud, or through an infrastructure-as-a-service model that enables you to burst to the cloud when you need additional capacity.
So if you’re facing a deadline but you need to run a model again because there’s a mistake in it, you can double the number of cores and run it faster to meet your deadline. And you’re not only getting the data back quicker – you’re also getting better data.
Low TCO
That on-demand capacity makes a significant difference in terms of speed to value and total cost of ownership (TCO). If an insurer normally uses 2,000 cores, but needs 5,000 to run quarterly or annual risk models, then maintaining that infrastructure onsite would mean investing in an extra 3,000 cores that are idle most of the time. It’s much more cost-efficient to pay for extra capacity only when you need it.
For example, in a TCO analysis for one customer we estimated that continuing to run their modelling onsite would require an additional investment of about $5.5m – but doing it in the cloud would only cost about $1.7m.
In fact, in our work with customers to date, we’ve seen that the cost of managing the infrastructure in the cloud is about 67% lower than managing it on site.
Agility
In a traditional IT environment it can take months to gain approvals, order and install the hardware and implement the system, which can then start to deliver value to the business. But setting up an environment to burst to in the cloud takes minutes. By entering into a relationship with a cloud provider like Microsoft, you’re in a position to provide value to your business and the end user immediately.
Our customers have found this out. Some are choosing the software-as-a-service option and picking solutions that enable them to manage the entire risk modelling process in the cloud rather than consolidating the disparate systems they manage on site. And in many cases, customers find that the cloud enables them to make use of existing technology investments – for example, with SQL’s power tools they can use Power Map visualizations to do catastrophic risk modelling, enabling them to put measures in place to minimize losses and manage the amount of claims related to that storm.
Compliance
Regulators are driving a lot of insurers towards the cloud. Regulatory standards like Solvency II, Dodd Frank and Basel III mean that customers have no choice but to expand their infrastructure or look for another way to add the capacity they need. Because what happens when regulations change again? Do you really want to continue to develop an infrastructure, or do you want to stay focused on your business?
The cloud enables that continuous expansion of capacity, as and when it’s needed. One of the key benefits of this type of modelling is that, because it’s broken into pieces, even if somebody does gain access to it, they only gain access to a minute portion of it which should contain no personally identifiable information.
The partners we work with at Microsoft are key to ensuring that Azure delivers all the benefits we’ve discussed here, enabling rapid time to value. To name a few, we work extensively with Towers Watson, Milliman and SunGard across the industry, and continue to grow our partnership with the likes of GGY, Oliver Wyman, RMS, AIR Worldwide and EQE among others. Our partners are your partners, and they can provide you with an upgrade path that takes you to the cloud – so you can stop worrying about your infrastructure and get back to focusing on business.
We’d welcome a discussion about how Microsoft Azure can deliver benefits for your business – just email me at jonathan.silverman@microsoft.com mentioning this blog, and we’ll take it from there.
