Published by analyst Craig Lowery on August 16th, 2022.
Cloud downtime insurance automatically pays claims when a public cloud service is observed to be unavailable. Product leaders can partner with licensed financial services institutions to augment their cloud service offerings with value-added service options.
• Cloud downtime insurance is a form and implementation of coverage that depends on automation and technology to deliver low-friction policy issuance and claims to cover loss in case of cloud service outages.
• Payouts are typically used to cover revenue losses, SLA liabilities and other customer compensations, and operational losses, but they are not tied to replacing anything specific.
• Coverage is defined by the observed service, the threshold at which the service is deemed “down,” and the claim payout amount. Buying cloud downtime insurance requires choosing parameters that result in meaningful yet affordable restitution, which is rarely straightforward.
Product leaders evaluating the emerging trend of cloud downtime insurance with respect to their product and service offerings should:
• Identify opportunities to participate in the cloud downtime insurance ecosystem by fully understanding the risks and benefits associated with this type of coverage, how it works, and the potential pitfalls associated with it.
• Evaluate productization opportunities for cloud downtime insurance such as the ones explored in this research in the context of adding value to your existing offerings.
• Partner with qualified insurance brokers to extend advisory services to customers to help them understand the benefits and risks of cloud downtime insurance, and to potentially acquire appropriately sized insurance.
Cloud downtime insurance is designed to help cover losses that arise due to cloud service outages. The coverage is based on a parametric insurance model, in which observable and quantifiable events lie at the core of both policy coverage definition and the determination of a qualifying claim. A prime example would be observing that a public cloud service has become unavailable for an amount of time that exceeds a threshold defined in the policy for that service. In such a case, the policy would dictate the payout of a monetary benefit as agreed upon in the policy. Figure 1 shows three critical insights that product leaders should understand about cloud downtime insurance, and three associated potential impacts on their cloud-based products and solutions portfolios. Table 1 provides details that further help define cloud downtime insurance by emphasizing both what it is and what it is not.