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Failure Is Not An Option

Joe McKendrick May 2005

For insurance carriers, brokers and agencies, the ability to recover quickly from a systems outage or disaster is critical to their business-and, increasingly, may be mandated by law or industry oversight groups. As a result, business continuity has become a core management issue, whereas in the past it was an issue that was addressed by IT executives.

"The insurance industry is moving from recoverability toward resilience," says Ted DeZabala, national leader of Deloitte & Touche LLP's security services team. "This is a huge change of mentality, of management, and of technology for the insurance industry."

Pressure for more effective business continuity and disaster recovery planning comes from many directions. For instance, the Health Insurance Portability and Accountability Act (HIPAA) stipulates that health care providers and payers meet basic requirements for protecting and recovering critical data.

And, last year, the Securities and Exchange Commission (SEC) approved rules proposed by the National Association of Securities Dealers (NASD) and the New York Stock Exchange which require NASD and NYSE members to develop business continuity plans that establish procedures relating to an emergency or significant business disruption. This move will affect insurers that also offer financial services products.

Under the new rules, every NASD and NYSE member must develop a plan that addresses various aspects of business continuity, including data back-up and recovery, mission-critical systems, and alternate communications between the firm and its employees and the firm and its customers.

And, for publicly traded companies, the Sarbanes-Oxley Act of 2002 (SOX) has put the onus on IT departments to ensure that critical data is preserved and quickly accessible to decision makers and stockholders.

Redundant systems

For most insurers, around-the-clock customer service is a crucial business strategy to build customer loyalty. To achieve that goal, companies have created redundant infrastructures to pick up operations in the event of a system outage. Often, these secondary systems are a scaled-down copy of the first.

"The goal is to have all data captured in the producer systems, and then also captured someplace else, so there's always a back-up copy in the other location," says DeZabala.

Noridian Mutual Insurance Co., for example, maintains a dual data center strategy, with IBM and Unisys mainframe systems located more than one mile apart from each other in Fargo, N.D., the company's headquarters. Noridian also administers the Blue Cross and Blue Shield plan for North Dakota.

"We're replicating the production data between the two sites at all times. If for any reason we lose the primary data center, key data is immediately available over at our secondary data center," says Troy Aswege, Noridian's assistant vice president of information systems.

Maintaining a second data center can bring down a recovery time objective (RTO) to less than 48 hours. At Noridian Insurance, the second data center provides a backup site that can bring the business up within a day, if necessary. This benefit became apparent to Noridian Insurance in June 2000, when the Fargo area experienced catastrophic flooding as a result of a torrential rainstorm.

When Noridian built its headquarters 25 years ago, the land was an open field. Eventually, streets, buildings and parking lots sprung up around Noridian's building, which happened to be on the lowest point of the land.

"All the water came running at us, and our data center shut down," Aswege continues. "Our data center flooded. We went through a true emergency shutdown. But we were able to bring our backup data center online within a day."

It did take several days before customer service and data backup were fully restored. "The delay was not related to our inability to bring the systems up, it was more related to the conditions in town, and the condition of the building," Aswege says. "The technology proved itself, and our management recognized the value in that."

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