The Data Game

It truly is a unique time in our history. The business processes we've come to know will soon become archaic. Technology is advancing more rapidly than ever before, and a number of new technologies are emerging as viable business solutions. The rising star among these is, undoubtedly, the cloud.

Businesses can realize huge benefits by adopting cloud technology. There are substantial cost savings when a company doesn't have to purchase and maintain physical data infrastructure, and the ability to access data from anywhere in the world is a major advantage for any business. The ease of implementation and scalability of cloud technology is enough to make companies of any size consider the cloud. It seems that the question is not if we're all moving to the cloud, but when.

Like any new technology, though, the cloud opens the door to a vast new set of exposures. Cloud technology is vulnerable to the same issues that impact computer hardware and does not provide safe haven from data outages, software glitches and cyber attacks. Virtually every organization relies on data transmission of some sort, and minutes, even seconds of downtime have an impact on business continuity.

"But the reality is that all technology is susceptible. Like electricity, Internet or air traffic control, no system is immune to periodic problems. Cloud computing doesn't promise guaranteed continuity. "

Bob Hartwig, President of the Insurance Information Institute

Mixed opinions about its benefits abound, questioning the security of cloud technology and stating the risks that come with the relinquishing of physical data infrastructure ownership. "There is a tendency to feel high and above the problems that have plagued computer hardware in the past," says Bob Hartwig, president of the Insurance Information Institute. "But the reality is that all technology is susceptible. Like electricity, Internet or air traffic control, no system is immune to periodic problems. Cloud computing doesn't promise guaranteed continuity." Apple cofounder Steve Wozniak recently expressed his worries about cloud technology, citing the potential for "horrendous" problems in the next five years due to the lack of ownership and loss of control that result from outsourcing data infrastructure.

Moving to the cloud places critical data and computing powers in the hands of a supplier that could be thousands of miles away. The ability to react to data outages in real time and make repairs as needed is disconnected from the company and redirected to the service provider. Data is likely stored and processed in two or more centers to ensure access during heavy network traffic. In many cases, data may be stored and processed by centers in multiple locations around the world. Oftentimes the service provider is also involved with multiple subcontractors, creating a complex web of suppliers that must react in unison in the event of a power outage or cyber breach, potentially delaying the clients' ability to get back online and resume business operations.

Many cloud service providers and their subcontractors are building data centers in emerging markets where construction and infrastructure are less expensive. For instance, Google and Microsoft are buying new sites in Hong Kong, Singapore and Taiwan for data centers to meet growing customer demand. The property exposures in these markets are undisputed, and as we've learned from the Thailand flooding and power outage in India, outsourcing critical business operations to emerging markets can have a significant impact on a company's supply chain.

From a security standpoint, it's difficult to say if a cloud service is totally secure. Many IT decision-makers feel that cloud applications are likely to be breached; the mass of information stored in the cloud is attractive to cyber criminals. We know that cyber attacks are relatively inexpensive and simple to conduct for someone with the right capabilities, resources and access. Combine that with service providers or subcontractors located in countries where security regulations are more lax and where state-sponsored hacking is rampant, and that's the root of a real problem.

But what about the cost savings and ability to access data anywhere, anytime? Cloud technology does indeed have its benefits, and can be the right solution when implemented effectively. There is a lot of support for the cloud as it applies to business continuity and disaster recovery plans. For instance, Japan has made advances in cloud computing driven by the need for faster disaster recovery systems after events like an earthquake or tsunami. Companies are using cloud computing in disaster recovery practices, mirroring servers in off-site data centers. When a natural catastrophe strikes, cloud technology can help employees work remotely.

To reap the rewards of cloud technology, companies merely have to hold their cloud vendors to the same standards they would apply to in-house data storage. Why settle for less? Be sure that all data center facilities are highly protected, and understand the exposures. Because building codes and regulations in emerging markets may not meet your company's or insurer's standards, the data center locations should be designed to a recognized benchmark, such as the Uptime Institute's Data Center Site Infrastructure Tier Standard. Be vigilant about vendor selection, basing your decision not only on price, but also on the service provider's reliability, ability to keep data available and accessible, and compatibility with your own disaster recovery plans. That is, is your supplier's business continuity plan as rigorous as your own?

Also be sure to understand how your property insurance policy covers cloud technology and any associated losses. Property insurance policies treat data service interruption differently than other outsourced services, and a loss event as a result of a data outage may not be adequately covered if you're on the cloud. It's important to involve your insurer's client service team in the process early on so they can help assess and engineer the risk and place capacity where it's needed. Additionally, a client service team can help develop an appropriate contract with the provider to ensure there are no questions of data ownership or other blurry lines that may interfere with the timely processing of a claim in the event of a loss.

With tremendous risk comes tremendous advantage. Cloud computing isn't the only new technology to prove that point, but it certainly is one of the most prevalent. Businesses that adopt cloud technology can benefit greatly, but first they must consider the exposures and potential business interruption implications. But, with the right supply chain management program, an adequate understanding of the complex web of suppliers, and an ironclad service level agreement with the service provider, companies with their heads in the clouds can reap great rewards.

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