All businesses, regardless of their niche, require some sort of accounting system in order to determine if their endeavors are profitable, identify where their money is going and complete required reporting to government agencies.
Small to medium-sized insurance companies have encountered unique challenges in developing accounting systems due to budget and technological constraints. Thankfully, the advent of cloud accounting systems has helped to ease these constraints and provide a powerful alternative to the old systems of spreadsheets and desktop applications.
Cloud accounting functions in a significantly different manner than desktop accounting functions. Instead of purchasing a software package for installation on each company computer, the accounting applications run on a remote server that has web-based access.
These applications are basically set up in one of two formats:
-Hosted: This format uses the company’s existing software and data but they are operational on a remote server with remote access through the Internet.
-SaaS (Software As A Service): With this format, everything including the software and data is stored on servers owned and operated by the vendor. Access to the system is gained via a web browser.
Some vendors offer these accounting applications in conjunction with insurance or risk management software already tailored to small and medium-sized insurance companies. It is also possible to subscribe to cloud accounting that operates independently of the management software, but it is usually more efficient to go with a system that interfaces with the management software or at the very least is compatible.
Cloud-based accounting systems are not always perfect and carry potential risks that companies should consider before taking the plunge. For instance, if Internet outages are a frequent occurrence, then access is not always going to be possible.
Security issues are another concern because as a subscriber to the cloud system, the insurance company has no control over the level of security used or the systems used to administer the security.
Another potential risk is the stability of the vendor. A contingency plan should always be in place in the event that the vendor suddenly goes out of business and the system becomes unavailable.