The pandemic prompted countless companies to seek out cloud solutions in an effort to adapt to this new COVID-consicous and socially-distanced world. This has been true across the board, with organizations of all sizes and in all business sectors opting for a wide variety of cloud-based services — cloud computing, cloud data storage, cloud networks, cloud-based hosting and cloud-based SaaS solutions, among others. The average company leverages a total of five different cloud platforms and this number is only expected to rise as cloud adoption increases.
But the companies that shifted to the cloud could be in for a shock if they encounter downtime. Cost-savings is the number one motivating factor for a vast majority of companies that migrate to the cloud, but a single incidence of downtime can come at a hefty price. Enter: cloud downtime insurance.
What is Cloud Downtime Insurance Coverage?
Cloud downtime insurance is a very clever concept that allows an organization to buy into protection against losses stemming from an incidence of downtime on a cloud platform. Typically, this cloud insurance coverage compensates for:
- Financial losses stemming from operational downtime; and / or
- Financial losses impacting a company’s customers or clients
Parametrix Insurance is one of the companies that began offering downtime insurance following the December 2021 AWS outage that impacted regions of northern Virginia. Their business model is unique in that they do not require policyholders to file a claim; the downtime is automatically detected by their proprietary cloud monitoring system and the policyholder is compensated without the use of a formal claims process. There is also no deductible, which is quite rare in the insurance industry.
Coverage is triggered after a one-hour wait period, which Parametrix says is the shortest wait period in the cloud downtime insurance space. The average cited wait time is eight to ten hours. Their insurance coverage currently covers up to $500,000 for up to 18 hours of downtime on 15 Microsoft Azure cloud services, 18 AWS services, 15 Google Cloud services and a limited number of Oracle Cloud solutions. Like most insurance providers, customized plans are available to meet an organization’s unique needs.
The payouts from a cloud downtime insurance policy can cover a variety of losses, including lost revenue from operational slowdowns or shutdowns, reduced or lost employee productivity, compensation to impacted customers or clients, data loss or data corruption, and even damage to an organization’s reputation.
Does My Business Really Need Cloud Downtime Insurance?
Cloud downtime insurance offers a safety net for organizations that rely upon cloud solutions to continue their operations. As such, an increasing number of companies are considering downtime insurance coverage as part of their risk management strategy.
The financial practicality of cloud downtime insurance will vary according to a variety of different factors such as the following:
- What cloud services your organization is utilizing;
- The role and importance of those cloud services in your company’s operations;
- The cost of downtime resulting from a cloud service disruption; and
- The cost of your insurance premium.
Virtually all cloud providers tout their uptime figures, but according to research by Parametrix, major cloud service providers AWS, Google Cloud and Microsoft Azure each saw at least one +30-minute outage every 21 days in 2021. This data makes it clear that cloud downtime is a very real and present issue.
Even with a track record of 99.99% uptime, the cost of that 0.01% of downtime can be tremendous. This is especially true for large enterprise companies. Gartner researched the topic of IT downtime and their surveys revealed the following figures.
- The average per-minute cost is $5,600.
- The cost per hour ranges from $140k to $540k with $300k being the average.
- 98% of companies estimated their per-hour downtime cost at +$100k.
- 81% of companies estimated their per-hour downtime cost at +$300k.
- 33% of companies estimated their per-hour downtime cost at $1-5 million or more.
With figures such as these, the real cost of downtime comes into clear focus. As such, cloud downtime insurance can bring tremendous peace of mind to cost-conscious business leaders.
Not Ready for Cloud Insurance Today? Reconsider in the Future
An increasing number of organizations should consider cloud insurance; if not today, then down the road. This is a great topic to explore during a company’s risk management strategy sessions. Just consider these rather remarkable cloud adoption stats and as you review them, remember that cloud adoption rates are growing at a very rapid pace. This means that these metrics will be rising over time.
- Nearly all enterprises — 99% — use a cloud service or solution.
- Approximately 85% of enterprise workloads are currently cloud-based.
- It’s predicted that 47% of SME IT budgets will be spent on cloud computing and other related cloud services in 2022.
- It’s estimated that 2021 will see a 35% growth in the size of the public cloud infrastructure.
- The global public cloud service market sector will exceed $623 billion by 2023.
- Cloud data centers across the globe will collectively store more than 100 zettabytes of data by 2025.
- A 2019 Right Scare State of the Cloud Report found that 72% of companies use a private cloud, while 91% use a public cloud. A majority — 69% — opted for a hybrid approach, using a combination of public and private cloud platforms to meet their needs.
Cloud adoption is clearly accelerating. Therefore, companies that do not feel as though they need to invest in cloud downtime insurance now may wish to re-evaluate down the road. A re-evaluation is especially prudent as an organization adopts an increasing number of cloud solutions and services. When evaluating the suitability of cloud downtime insurance, you’ll want to use a data-driven decision-making process. Calculate the cost of downtime for your organization, its operations and its customers/clients. Then, evaluate this relative to the cost of obtaining cloud downtime insurance to determine if you can justify the expenditure.
Harnessing the Power of the Cloud
At 7T, we believe that the cloud represents the future of computing and as such, we integrate cloud-based technology into our mobile app and software solutions whenever the opportunity arises. And yes, downtime is always a risk. But this is true of on-premise and other non-cloud-based solutions too. The cloud brings many advantages that make it a cost-effective, scalable solution — one that is consistently beneficial for a broad range of applications.
At 7T, our development team works with company leaders who are seeking to solve problems and drive ROI through digital transformation. As an innovative Dallas software and mobile app development company, 7T offers collaborative, multi-phased software development services to clients in all business sectors.
Our offices are situated in Dallas, Houston and Austin, but our clientele spans the globe. If you’re ready to learn more about developing enterprise software, a mobile app or another solution for your organization, contact 7T today.