An insurer’s policyholder bets on a promise: In exchange for a certain premium paid, they expect that their insurer and its agent will provide prompt, thorough and fair claims service if and when a claim arises. This expectation isn’t a new phenomenon, but when a catastrophe strikes, it’s certainly a challenging one from the insurer’s perspective.
Because when a catastrophe—namely a severe storm—strikes, the insurer is propelled into emergency operation mode, an intense period of peak demand and rapid response. Indeed, providing the utmost in customer service at a time most needed establishes long-term good will and sets a carrier apart from its competition. But how can insurers protect their own technology systems from CAT losses when a disaster strikes so they can make good on that promise?
As of September this year, there have been 12 weather and climate disaster events with losses exceeding $1 billion each across the United States, notes the National Oceanic and Atmospheric Administration (NOAA). These events have been spread out across the country and have included such phenomena as flooding, tornadoes and hailstorms.
Against this illustration, insurers’ increased focus on moving core systems’ operations to the cloud is a healthy exercise, and it’s proving more common by the day. In fact, along with disaster recovery/business interruption issues, mid-size carriers now assign cost, scalability, reliability, and 24/7 accessibility of data as primary KPIs related to powering down legacy hardware and software in lieu of new core systems running on a Software as a Service platform.
Such was the case at Union Mutual (UM), Montpelier, Vt., which recently migrated an existing implementation of SurePower Innovation®, a modern enterprise insurance platform for personal, commercial and specialty lines of property and casualty (P&C) insurance, to the cloud via ISCS’s SurePackage™ offering. Union Mutual, which provides home, auto and commercial lines insurance to all six New England States and New York, had been using SurePower Innovation’s technology in house, chiefly due to concerns about ROI and the maturity of existing cloud technologies. This year, a confluence of circumstances caused UM to reconsider.
“Disaster recovery was and always is a consideration,” notes Bob MacLeod, UM’s AVP of Information Systems, “but so was the timing of the renewal of our existing contract with ISCS, the fact that some of our hardware was nearing end of life, cost efficiencies, speed, scalability related to our company’s growth trajectory, and of course, security.”
When still hosting the ISCS solution internally, UM experienced a brief power outage as a result of Hurricane Irene in 2011, but a more severe disaster struck earlier this year when a 4th floor flood damaged almost all offices on the floors below.
“If the water had hit our computer room, all bets would have been off, but luckily, the flood did not reach that area,” he says. “We had redundant systems at a remote location, but all functioning desktop units were damaged, so we quickly ordered zero clients and sent employees home to work remotely until we could repair the offices. Our 3,500 agents and all our customers experienced business as usual, but operating in the cloud would have been a lot more streamlined.”
UM’s recent migration of 13TB of data via the ISCS SurePackage deployment option (backed by Amazon Web Services) took place over a three-day weekend. “Now that we’ve moved our admin system to the cloud, we’ll be moving to Office 365 and all of our Microsoft products, too. We’ll be ready if a disaster does strike or for any reason we experience peak activity—we’ll just call ISCS and tell them to turn up the volume.”
For Mississippi Windstorm Underwriting Association (MWUA) manager Joe Shumaker, a 27-year veteran of the Fair Access to Insurance Requirements (FAIR) plan, turning up the volume during a disaster takes on another meaning.
MWUA, a not-for-profit state-controlled insurance entity that operates as the insurer of last resort for windstorm claims, insures against wind and hail in the six lower counties of the state, and falls under the jurisdiction of the State Insurance Department, so all carriers licensed to provide fire insurance in the state are required to pay into the state pool.
“After Camille in 1969, the industry saw a void in carriers down here,” Shumaker says. “Against that backdrop, fast-forward to 2005 and Katrina.”
After Katrina made landfall, the organization—located 150 miles inland—lost power for a day and a half, so servicing those claimants who could not even find their homes due to flooding and destruction became a major challenge.
“There were no hotel rooms, electricity or water; cell phone towers were destroyed so our ability to communicate was hampered greatly,” says Shumaker, who drove 200 miles north after the storm to get gas back to the office area so they could power up an auxiliary system and keep working.
During Katrina’s aftermath, MWUA resorted to paper-based customer service. “We could not access our system, and we were at peak demand, with claimants calling to report death and destruction. We obviously didn’t have cloud-based core systems in place, so there was no turning up the volume to accommodate peaks in demand. Plus, we don’t physically handle the claims here, and because of the storm, we couldn’t communicate with our claims servicing partner.”
The organization decided to go forward immediately with loss notices. “We opened a claim for every policy we had at the time—16 million.” Although MWUA reports that less than 10% of those loss notices resulted in a claim, adjusters were prepared to provide services to the percentage that did.
Today, with 46 million policies in force, MWUA relies on the web-based ISCS SurePower Innovation core insurance platform to proactively manage peak demand. Like Union Mutual’s MacLeod, Shumaker says the decision to implement core systems in the cloud was based on more than uptime. “I’m accountable to the Mississippi Insurance Department, so I’m not trying to cut corners and make a profit [on the technology],” he says. “I’m trying to provide the best possible reliable service.”
The services Shumaker is referring to can accommodate MWUA’s normal traffic (200 users) to up to 100 times that volume. “When bad weather is expected, insurers, agents and policyholders want access to the self-service portal to view policies, check coverage and after the storm, check on claims status. ISCS is able to scale our resources to meet those needs.”
Shumaker adds that MWUA’s current disaster preparedness elements include supplies of auxiliary power and natural gas, dual sources of Internet, voice-over-protocol and reliable, secure and accessible core systems technologies.
“We are almost 100% catastrophe-driven,” he says. “At the end of the day, our system needs to be up and running. It’s our data and our policies in force, so we need to be able to control that, identify adjusters and field operative, and provide the prompt, thorough and fair claims service that the claimant is expecting.”