Tag Archives: disaster recovery

The Best Tools for Disaster Preparation

If the COVID-19 pandemic has taught the world anything, it’s that each event is different from the last. It’s not enough to have an abstract plan in place when disaster strikes. The most effective disaster recovery and business continuity (DR/BC) plans are those that organizations practice routinely. Insurers and companies across all industries should be prepared to stay online during a range of natural and man-made disasters, from earthquakes to pandemics and cyber-attacks. 

Modern consumers have come to expect 24/7 accessibility from their service providers. A weak infrastructure that can’t reroute traffic or a third-party partner’s lapsed platform causing an entire system to go down are not just inconveniences—they’re threats to customer relationships. DR/BC plans should take such liabilities into account and be tested end-to-end. 

Most insurers created DR/BC plans with hurricanes, winter storms or other natural disasters in mind—not terrorist attacks or pandemics. Organizations should consider these plans as living documents for precisely this reason. The impact of contagious illnesses (e.g., COVID-19) on company staff and leadership may not be present in existing plans. If so, organizations may need to put social distancing into effect, especially in key departments with high concentrations of knowledge or ability. 

Preparation Is the Best Prevention

Even the best-informed DR/BC plan is unlikely to cover every scenario. Preparing the entire organization for emergencies, however, drills in responses to create a form of muscle memory that makes employees ready to respond when new threats emerge. Pressure testing or refining a system is better done when an organization is running at full capacity rather than after a disaster has emerged. 

See also: Coronavirus: What Should Insurers Do?  

Plans may attempt to cover a broad range of known issues and look to incorporate reasonable fail-safe provisions to address contingencies if partner systems go down, but they should still follow two rules.

1. Documentation should be easily—and immediately—accessible. 

Even if plans establish clear lines of communication, explain how to access critical systems and lay out how to frame decision protocols, they do no good if employees can’t access them when the time comes.

Organizations should store DR/BC plans somewhere that is easy to locate, and there should be multiple instances of the plans. If an entire grid is down, for example, SharePoint is not a convenient place to house emergency instructions. Insurers should also encourage their employees to take information home with them. Corporate networks should not be the only storage space for emergency documentation—and demonstrating knowledge of DR/BC plan access points should be covered as part of employees’ test exercises. 

Employees are only able to act in a crisis if they have the hardware they need. Laptops or tablets should be available to take home; bringing these devices with employees should be part of regular training exercises. Equipment is not useful during a test or a “live fire” event if it stays at the office overnight. 

2. Plans should be created early and practiced often. 

The greatest key to a successful DR/BC plan is preparing long before precipitating events are on the horizon, when the organization can consider all scenarios. Employees will know what to expect and how to behave when disaster drills are routine (like fire drills), no matter if the employees are part of IT or serve as a member of a business unit. 

The events that teams practice for are seldom the ones that happen in real life, but preparing for a wide array of scenarios can help management and associates to stay calm and focus on understanding what is new or unusual about the emerging situation. When rational responses to crises become second nature, individuals and organizations can survive a wide array of incidents with lower stress and less negative impact on the people who depend on them most—their customers. 

If possible, employees should undergo regular online training in these emergency protocols with certification available. That way, newer employees or those less familiar with DR/BC plans and procedures can receive updated experience until the whole team is on the same page about where and how to access the information they need during an emergency. 

See also: How Coronavirus Is Cutting Connections  

No insurer can prepare for every possible emergency, especially when the future is uncertain, as it is with COVID-19. But maintaining a well-thought-out DR/BC plan that exists as a living document can help any organization keep a cool head when people need to make big decisions quickly. Creating a plan early and making sure employees know how to access it are foundational to keeping the lights on (and customers satisfied) when disasters and other unexpected events occur. My motto as a CIO in insurance and banking was, “Prepare for the worst; hope for the best,” while remembering that hope is not a plan on its own.

Hurricane Harvey: An Insurtech Case Study

Storms of unprecedented power have lashed the U.S. and the Caribbean in recent years, leaving a trail of devastation estimated in the tens of billions of dollars. The U.S. alone has experienced 212 natural disasters since 1980 with the overall costs totaling $1.2 trillion, according to the National Oceanic and Atmospheric Association (NOAA).

As a venture investor interested in fintech, I get sight of quite a lot of innovative insurtech startups hoping to be the next big thing in insurance. Barely any of these businesses are focused on improving claims management. Why is that?

Perhaps claims are considered the least sexy aspect of the insurance industry, a necessary evil if you like. Good insurers understand the claims experience is one of the most important parts of insurance. Insurance, after all, is a promise to make good your losses in case of an accident.

Natural disasters are brutal. They leave people vulnerable and exposed, and a speedy resolution by the insurer is crucial to the customer experience, encourages customer retention and also saves the insurer time and money.

That’s an easy thing to say, but dynamically responding to claims after events of the magnitude of Hurricanes Harvey and Irma is no mean feat. It’s often impossible for people to access the areas for quite some time, by which point storm surges have subsided, and claims can be harder to assess.

One company addressing this challenge for insurers is Geospatial InsightVenturesOne recently announced a growth equity investment in the company, and I was with their team in the U.K. They had just delivered incredibly detailed visual intelligence on Hurricane Harvey to enable insurers and their corporate clients to understand the situation at ground level and respond swiftly to claims.

There are three main challenges that an insurer can address by adopting visual intelligence services after a natural disaster:

  1. The approximate total claim size likely as a result of the event.
  2. An accurate map of the area affected by the event, to prevent fraudulent claims.
  3. That the proximate cause of the claim is directly related to the event.

There is a lot of hype around the possibilities of advancing techs like machine learning, big data and drones, etc., but I see less in the way of tangible examples of how they can be combined to deliver benefits right now, so here is a real-life example.

Hurricane Harvey Case Study

On Aug. 25, 2017, category 4 Hurricane Harvey makes landfall near Rockport, Texas.

Harvey causes catastrophic flooding, with 50-plus inches of rainfall in some areas (a record from a tropical cyclone in the U.S.). Harvey covers over 20,000 square miles in 72 hours, displacing 30,000 people.

See also: Hurricane Harvey’s Lesson for Insurtechs

Situational Analysis

The first step was to make an initial assessment of the affected area and a rapid review of expected requirements by insurance clients. The densely populated residential and commercial area of greater Houston was set.

Big Data Collection, Processing and Analytics

Although Harvey made landfall on Friday, the weather event continued with torrential rainfall throughout the days that followed. By Wednesday, the 30th, it is estimated that a mind-boggling 24.5 trillion gallons of rainwater was dumped from the Gulf of Mexico across Houston and Southern Texas.

To get the most comprehensive understanding possible, a diverse variety of data sets were collated, including terrain data, satellite imagery, drone footage from social media scrapes and independent commissioned light aircraft with specialist high-resolution camera imagery.

The team used the data collected from aerial and social to calibrate the threshold used to generate the sentinel footprint. Geospatial Insight then use proprietary algorithms to cluster the areas detected as water into flooded areas.

To understand the likely impact of Harvey on homes and commercial buildings, the multiple data sets were combined to gain insight into flood extents. The color-coded image below shows different data sources.

The blue is derived from the National Oceanic and Atmosphere Association (NOAA) imagery and an aerial survey using a Midas oblique camera system.

The red is Sentinel 1 radar satellite that can penetrate cloud cover to identify areas of standing water.

The small pockets of yellow are derived from Geospatial Insight’s social media scraping tool to find photos and videos of the event, which can then be mapped to build the extents from video evidence. Typically, the team use their global network of licensed UAV operators that work to agreed SLA’s to map flood areas with drones, however, drones were banned over Houston during this time frame due to emergency services using the airspace for rescues, etc.

Footage like the example below were identified, then the flight path and flood extents expertly mapped.

Why was the flooding so severe?

You can clearly see the two large blue reservoirs on the west side of Houston, Addicks to the north of Interstate 10 and Barker to the south. They are designed to protect Houston from flooding, and both dams feed into the Buffalo Bayou. The reservoirs are surrounded by parks and residential areas, and by Monday evening water levels had already reached record levels, measuring 105 feet at Addicks (north) and 99 feet at Barker (south).

Local officials hoped to prevent a spill-over by slowly releasing water from both the Addicks and Barker dams on Tuesday and Wednesday. However, the storm surge was so great that the engineers had to release water through the dam gates much earlier than expected or risk it spilling over and causing further damage to homes. A warning was given to homes to evacuate in the early hours of Monday morning, but the decision was made to release the pressure late Sunday night, and many residents became stranded in the resulting swell.

Accelerating Claims with Visual Intelligence

To provide the intelligence required to rapidly address insurance claims, the Geospatial Insight team needed to first make sense of huge amounts of unstructured data. Not only the diverse image sources but also client information for insurance customers and corporate responsibility data like home addresses of employees to map the affected customers and staff.

This data was quickly mapped and the multiple image sources applied as layers to allow corporate clients to access and make sense of the information via Geospatial Insights’ dedicated customer portal.

The image above shows the client portal with claim location points identified in yellow.

High-resolution satellite images can be a good indicator, but they are a top-down view, so it is much harder to get an accurate perspective on the level of damage on a property. Images at an oblique angle were needed to help quantify this over a vast area, and thus Geospatial Insight commissioned a light aircraft equipped with a Midas 5 camera to map the most-affected region for high-resolution imagery.

See also: Preparing for the 2019 Hurricane Season  

The visualization below shows how this camera is able to capture oblique angles in four directions simultaneously (along with an overhead view).

Using this technique, huge areas could be imaged in high resolution and then mapped to provide oblique angled images in North, South, East and West orientations for accurate analysis of identified claim locations.

With this resolution and volume of data, the Geospatial Insight team could identify the evidence of flooding such as remaining water, sediment and waste outside houses even after the flooding drained away. Below is an example image showing home furnishings being disposed of. You can clearly see the raised swimming pools that remained clean and blue compared with those that were ruined by the storm surge.

Rebuilding Lives After Disaster

Sadly, it seems many residents of Houston were uninsured and face rebuilding their lives without any form of insurance payout. For those with cover, getting access to funds quickly will make all the difference.

By embracing the kind of technology used in Hurricane Harvey, insurers can make a meaningful difference in helping residents, businesses and communities get back on their feet as quickly as possible.

5 Tips for Filing a Post-Disaster Claim

When disaster strikes, organizations can face significant losses—not only from damage to physical property but also from the business interruption caused by the event. Here are five key tips to keep in mind when filing an insurance claim after a disaster:

Disaster Response Checklist:

1. Communicate with employees and external stakeholders. Following the activation of an emergency preparedness program, it is critical to communicate with employees and business partners about their well-being, as everyone will be dealing with potentially significant, or even devastating, personal and professional issues.

2. Review your insurance policy. Even if a business does not suffer physical damage, it may have coverage for business interruption losses. For example, if a business’s customers or suppliers have been flooded and cannot receive the business’ goods or services, the insurance policy may include what is referred to as “Contingent Time Element coverage.” Non-physical damage coverage for business interruption losses can also include lack of access to facilities (road closures), government declarations of emergency, cancellation of events or loss of utilities, among others.

See also: 6 Reasons We Aren’t Prepared for Disasters  

3. Maintain contemporaneous documentation. To say that the hours and days after a disaster are hectic is an understatement. This is a trying time for businesses as they try to rebuild and recover. However, keeping careful records even during this time of disruption is critical. Email traffic around current market conditions, cancellations of sales or suppliers/customers being affected is critical to preserve as it is extremely valuable to a business interruption claim.

4. Get the right team on your side. A major property claim can take several months to resolve, and the complexity of the issues that may arise requires external experts to look out for a business’s interests while management focuses on what is important—rebuilding and recovering. Additionally, the fees paid surrounding disaster recovery services are often reimbursable by the insurance carrier, resulting in no out-of-pocket costs to the affected business.

5. Establish milestones for claim recovery. Following a catastrophe, resources are often stretched thin. It is important to create milestones and hold all members — from the adjusting team to internal stakeholders — accountable for achieving those goals.

5 Techniques for Managing a Disaster

Once disaster strikes, the first priorities are always safety and preservation of property, but there are priorities to consider ahead of a loss to avoid unexpected surprises. Disaster mitigation and restoration is a critical service after property damage, and how you manage it may affect the outcome of your claim. Though there are many capable firms that specialize in property damage clean-up and restoration, there are some that will make mistakes, and others may even take advantage of the situation. When it comes to recovering the cost of mitigation and restoration services for an insurance claim, any mishaps can create big problems that may leave you stuck with the bill.

See also: Are You Ready for the Next Disaster?  

Here are five techniques to prevent potential problems before they arise:

    1. Vet your emergency response team prior to loss — Preparation is the key in any endeavor, and with property damage claims you cannot be too prepared. Recovery service providers should be identified and interviewed. Make sure the company you choose will be able to handle your potential issues. Involve your insurer during vetting. There are “approved” vendors that insurance companies recommend; however, just because they are “approved” does not mean there will not problems. Notify the insurance company of who you plan to use, as well.
    2. Clarify and document scope of work — Be clear on scope of work with the recovery firm and make the adjuster part of that conversation. Often, emergency response does not follow the normal protocols of a typical project. There likely won’t be time for detailed estimates, so try to get the adjuster to approve work in real-time to avoid second guessing.
    3. Take a hands-on approach — Your property may still be underwater, but once access is granted you must be hands-on. No one should have access to your facility without the presence of a company representative. Assign a property supervisor to the affected site to keep track of who is there and what they are doing. It’s your property and your responsibility. The bigger the loss, the more people there will be coming in and going out, so it is vital to have a company representative onsite to observe and answer questions.
    4. Audit contractor charges before approving — The first weeks after a loss are chaotic. It’s important for policyholders to put controls in place to monitor activity and to verify that work has been completed to specifications and according to the terms of the agreement. Reimbursable insurance expenses should be separated and audited prior to payment for proper detail and accuracy. This needs to be done efficiently in real-time. If you don’t have the resources, this step can be completed by your claim preparation accountants, i.e. forensic accountants. Having forensic accountants on your team, along with your technical experts, can let you process this information in the context of insurance recovery. Don’t assume your forensic accountants will automatically audit invoices. Identifying errors or, worse, fraud is critical to avoid delays in payment or project completion.
    5. Address issues immediately — When the first invoice arrives, insurance companies may act surprised and even deny coverage, especially if the steps above have not been followed. Make sure to get the parties together to discuss the issues. Don’t procrastinate and don’t assume. It is important to be proactive with any potential discrepancies. The policyholder is responsible if there are unresolved differences. If the adjuster disagrees with the work performed and the invoices are paid, it may be difficult to recover all your expenses.

See also: A Real Checklist for Real Disasters  

The immediate aftermath of a disaster is stressful and hectic. Preparation and communication can help you weather the storm and minimize unwanted surprises when you’re looking for claim payment. Having an experienced and independent forensic accounting team will reduce the stress, the workload and reimbursement issues. Per the tagline for one of the largest restoration firms, in the end you want it to be “Like it never even happened.”

Home Insurers Ignore Opportunity in Flood

Recently, Munich Re announced its plan to step into the U.S. inland flood market to offer a competitive flood coverage endorsement for participating carriers. This is the second notable entry of international capital into an arena dominated by the federal government.

Munich Re is known as a conservative giant of international reinsurance, so it might seem odd that it is joining the National Flood Insurance Program (NFIP) in covering U.S. flood. A quick look at the opportunity shows why the plan makes sense.

U.S. inland flood insurance is an untapped source of non-correlated premium unlike any other in the world. The market is dominated by an incumbent market maker that is in trouble because it offers an inferior product that cannot price risk correctly (this paper nicely summarizes the problems at NFIP). So, here is what the new entrants are seeing:

  1. Contrary to industry beliefs, flood is insurable. The tools are present to accurately segment risk.
  2. Carriers offering flood capacity will differentiate themselves from competitors. This will give them a leg up on the competition in a market that is highly homogeneous. Carriers not offering flood will likely disappear.
  3. The market is massive, with potentially 130 million homes and tens of billions of dollars at stake.

Let’s go into details.

Capital Into a Ripe Market

The U.S. Flood Market

As most readers of Insurance Thought Leadership already know, many carriers have flood on the drawing board right now. The Munich Re announcement was not really a surprise. We all know there will be more announcements coming soon.

Let’s summarize the market reasons for the groundswell of private insurance in U.S. flood.

The most obvious characteristic of the market is the size. For the sake of this post, we’ll just consider homes and homeowner policies. Whether one considers the number of NFIP policies in force as the market size (about 5.4 million policies in 2014), the number of insurable buildings (133 million homes) or something in between, there is clearly a big market. And the NFIP presents itself as the ideal competitor – big, with a mandate not necessarily compatible with business results.

So, there is no doubt that a market exists. Can it be served? Yes, because the risk can be rated and segmented.

Low-Risk Flood Hazard

To be clear: A low-risk-flood property has a profile with losses estimated to be low-frequency and low-severity. In other words: Expected flood events would rarely happen, and not cause much damage if they do. For many readers, joining the words “low-risk” and “flood” together is an oxymoron. We strongly disagree. Common sense and technology can both illustrate how flood risk can be segmented efficiently and effectively into risk categories that include “low.”

Let’s start with common sense. Flood loss occurs because of three possible types of flood: coastal surge, fluvial/river or rain-induced/pluvial (here is more information on the three types of flood). The vast majority of U.S. homeowners are not close enough to coastal or river flooding to have a loss exposure (here is a blog post that explores the distribution of NFIP policies). Thus, the majority of American homeowners are only exposed to excess surface water getting into the home. We’d be willing to wager that most of the ITL readership does not purchase flood insurance, simply because they don’t need it. That is the common-sense way of thinking of low-risk flood exposure.

How does the technology handle this?

There is software available now that can be used to identify low-risk flood locations (as defined by each carrier), supported by the necessary geospatial data and analytics. Historically, this was not the case, but advances in remote sensing and computing capacity (as we explored here) make it entirely reasonable now, with location-based flood risk assessment the norm in several European countries. Distance to water, elevations, localized topographical analyses and flood models can all be used to assess flood risk with a high degree of confidence. In fact, claims are now best used as a handy ingredient in a flood score rather than as a prime indicator of flood risk.

How to Deliver Flood Insurance in the U.S.

Deliver Flood Insurance to What Kind of Market?

Readers must be wondering at the size of market, because we offered two distinctly different possibilities above – is it about 5 million to 10 million possible policies, or 130 million policies? The difference is huge – the difference is between a niche market and a mass market.

The approach taken by flood insurers thus far is for a niche market. The current approach probably has long-term viability in high-risk flood, and the early movers that are now underwriting there are establishing solid market shares, cherry-picking from the NFIP portfolio.

On a large scale, though, the insurance industry’s approach needs to be for a mass market.

Here is a case study describing the mass market opportunity:

  1. The property is in Orange County, CA, where the climate is temperate and dry, almost borderline desert. El Niño might be coming, but that risk can be built in.
  2. Using InsitePro (see image below), you can see that the property is miles and miles away from any coastal areas, rivers or streams. More importantly, the home is elevated against its surroundings, so water flows away from the property, which is deemed low-risk.
  3. The area has no history of flooding, and this particular community has one of the most modern drainage systems in the state.

map

Screenshot of InsitePro, courtesy of Intermap Technologies. FEMA zones in red and orange

  1. Using Google Maps street view, we can estimate that the property is two to three feet above street level, which adds another layer of safety. Also, this view confirms that the area is essentially flat, so the property is not at the bottom of a bathtub.
  2. And, as with most homes in California, this property has no basement, so if water were to get into the house it would need to keep rising to cause further damage.

To an underwriter, it should be clear that this home has minimal risk from flooding. As a sanity check, she could compare losses from flood for this property (and properties like it in the community) to other hazards such as fire, earthquake, wind, lightning, theft, vandalism or internal water damage. How do they compare? What are the patterns?

For this specific home, the NFIP premium for flood coverage is $430, which provides $250,000 in building limit and $100,000 in contents protection. The price includes the $25 NFIP surcharge.

This is a mind-boggling amount of premium for the risk imposed. Consider that for roughly the same price you can get a full homeowners policy that covers all of these perils: fire, earthquake, wind, lightning, theft AND MORE! It is crazy to equate the risk of flood to the risk of all those standard homeowner perils, combined! We provided this example to show that even without all the mapping and software tools available for pricing, what we can quickly conclude is that the NFIP pricing for these low-risk policies is absurdly high. Whatever the price “should” be for these types of risks, can you see that it MUST be a fraction of the price of a traditional homeowner’s policy? Don’t believe that either? Consider that the Lloyd’s is marketing its low-risk flood policies as “inexpensive,” and brokers tell us privately that many base-level policies will be 50% to 75% less expensive than NFIP equivalents.

The news gets even better. There are tens of millions of houses like this case example, with technology now available to quickly find them. These risks aren’t the exception; these risks can be a market in their own right. Let the mental arithmetic commence!

Summary: Differentiate or Die!

The Unwanted Commodity

Most consumers of personal lines products don’t have the time or the ability to evaluate an insurance policy to determine whether it provides good value. Regrettably, most agents and brokers don’t have the time to help them either. So, when shopping for a product that they hope they will never use and that they are incapable of truly understanding, consumers will focus on the one thing they do understand: price.

Competing on price becomes a race to the bottom (yay! – another soft market) and to death. But there is an opportunity here – carriers that compete on personal lines/homeowner insurance with benefits that are immediately apparent (like value, flexibility, service, conditions and, inevitably, price) have a rare chance to stake out significant new business, or to solidify their own share.

The flood insurance market is real, and it’s big enough for carriers to establish a healthy and competitive environment where service and quality will stand out, along with price. Carriers that would like to avoid dinosaur status can remain relevant and competitive, with no departure from insurance fundamentals – rate a risk, price it and sell it. It’s obvious, right?

Which carriers will be decisive and bold and begin to differentiate by offering flood capacity? Which carriers will evolve to keep pace or even lead the pack into the next generation of homeowner products? More importantly, which of you will lose market share and cease to exist in 10 years because you didn’t know what innovation looks like?