On July 19, 2024, cybersecurity giant CrowdStrike issued a routine software update. However, this time things went terribly wrong. The update, which was meant to enhance security, ended up causing major disruptions across industries worldwide. The faulty software quickly wreaked havoc on IT systems reliant on Microsoft’s operating system, with insurance firm Parametrix estimating $5.4bn in damages were done to Fortune 500 companies alone. Jeff Heine, Chief Revenue Officer of Novidea delved into why this calamity underscores the need for modern, sophisticated insurance management systems.
With the now infamous CrowdStrike outage leading to leading to grounded planes, halted stock markets, and closed businesses, a litany of cyber insurance claims quickly following suit was no surprise, which ultimately affected businesses seeking compensation for their losses.
One of the most high-profile cases involves Delta Airlines, which last week announced legal action against both CrowdStrike and Microsoft.
The airline’s operations were heavily impacted by the software failure, leading to the cancellation of over 7,000 flights. Delta claims the disruption cost it $380m in lost revenue, refunds, and compensation.
The incident has sparked debates on whether this is a Cyber or Business Interruption insurance issue, with experts unable to fully agree.
Since the outage stemmed from a software update rather than a malicious cyberattack, the nature of the coverage remains uncertain. However, it’s clear that the increasingly interconnected nature of global business systems and software vendors leaves businesses vulnerable to such widespread incidents.
For insurance companies, Heine explained that this serves as a wake-up call to reassess their preparedness for global software failures. Those lucky enough to have escaped the fallout should take this opportunity to review their front, middle, and back office systems.
In the event of future incidents, companies need to ensure they have the technological infrastructure in place to handle customer inquiries, claims processing, and communication. An outdated system could leave insurance firms scrambling to manage a surge in claims just when their clients need them the most.
For instance, does your company have a scalable customer interface capable of handling a large volume of inquiries after a widespread disruption?
Are agents or brokers equipped to provide real-time updates on claims through secure portals or messaging systems?
Additionally, your back-end systems must be robust enough to allow staff to access policies and ensure accurate coverage information during such incidents.
To stay competitive in the insurance sector, a connected and technologically advanced system is essential.
This will allow firms to respond swiftly and accurately to a flood of claims during future events. Providing clients with easy access to file claims and track their progress through secure portals can be a significant competitive advantage.
The industry’s future success will depend on the ability to streamline operations and technology.
Insurance companies are now racing to upgrade their systems. Research indicates that 75% of insurance firms are planning significant technology changes by 2025.
The proactive firms will spend the rest of 2024 and early 2025 making these upgrades.
Those who delay risk being left behind, unable to meet the demands of their clients or outmanoeuvre their competitors when the next major disruption hits.
Read the full blog from Novidea here.
Copyright © 2024 InsurTech Analyst
