Insurance Risk Firm Models Catastrophes – In Iceland

RMS, which calculates the risk of catastrophes for the insurance industry, has built a cloud based service to offer risk data on everything from hurricanes to earthquakes – and has done it in Iceland.

The risk management company has offered risk modelling software to insurance companies, but is now moving its offer to a cloud service. It’s been developed in California and  deployed in Iceland, where electricity is cheap and green, using Datapipe connectivity and technology from EMC and VMware. The eventual service will be delivered from London, but the Iceland cloud, housed in Verne Global’s data centre, will remain as a disaster recovery backup.

Storm surges… or data surges?

The insurance industry relies on understanding risks, but these are very hard to calculate for disasters which happen once every 50 or 100 years said Robert Muir-Wood, chief research officer for RMS, and a published author on earthquakes, speaking at an event in the Viking Museum in  Reykjanesbær Iceland.

Global warming adds more complexity to the situation, because risks are changing, but the extent of climate change is controversial. It’s also difficult to factor in, as climate change is based on historical data, but insurers must offer business based on the present – and the future.

“It is a challenging issues,” said Muir-Wood. “Insurers feel they are light footed around this, because their contracts are rewritten each year. They can refuse to offer insurance too. But people expect the insurance industry to have a societal responsibility to provide cover.”

RMS has offered on-site software to model the likelihood of disasters, and their consequences, including factors such as the subsequent weather. For instance, Hurricane  Sandy had Category 1 strength winds, but caused more destruction than some people expected, because other factors created a higher strength storm surge, said Muir-Wood.

There are  more than 600 million locations in the world which have this sort of insurance, and big risks, such as large multi-tenant buildings, are often parcelled out between different insurers. This creates a big potential demand, and RMS decided to move to a cloud-based service. It built its own cloud, rather than using a public cloud such as Amazon, because of the high reliability required and the performance of  links between different virtual machines must be tuned in ways that services like Amazon’s EC2 cloud service do not allow.

RMS built a cloud with 5000 cores that can be scaled to more than 30,000, using storage from EMC, and VMware’s virtualisation, The whole thing was built in Verne Global’s data centre in Iceland, which is powered entirely with renewable electricity provided from geothermal and hydroelectric sources. The project management was handled by Advania, which owns Thor, a smaller container-based data centre in Iceland.

Moving to the users

Although the beta tests  run on the Iceland-based system provided great performance to RMS in California, it will have to be delivered somewhere closer to actual customers, for reasons of latency, said Paris Georgallis, vice president of platform operations at RMS, The Iceland system has been using real customer data for quality and stress testing; the third beta test has now been decommissioned, and a fourth test is starting, which will continue until the live RMS (one) service starts in April.

The live service will be offered from data centres in London and on the East Coast of the US – very likely provided by Datapipe (which has sites in Slough and the City of London). At that point, the at a site (to be announced) in London, when the service goes live . The Iceland facility will then continue as a test environment, and a dedicated disaster recovery backup for the others. This means it will eventually be as big as both live sites put together.

When demand surges the live service will be able to burst to virtual machines at the site in Iceland. when extra capacity is needed. Privacy will be assured, because the data will be chopped into small pieces, and the temporary nodes in the public cloud will only have a read-only copy of the RMS (one) model, said Georgallis.

“We will see a lot of industry specific clouds start to surface, because it is not one size fits all,” said Georgallis. The big change is that risk assessments which previously would only have been available to firms’ specialist catastrophic risk analysts, can now be seen by underwriters in almost any insurance company .

RMS has competitors with different risk modelling approaches, but hopes that a move to the cloud will keep it one jump ahead of them. The firm is offering its rivals the chance to put their risk models on its cloud, said Georgallis, along with customers who will be able to build their own models on top of the RMS data. ERN, JBA Risk Management and Risk Frontiers have taken the offer up, according to an RMS release.

Iceland’s minister for industry, Ragnheiður Elín Árnadóttir, promised that data centres would continue to be welcome in Iceland – they form a major potential export market, in a country with a large surplus of electricity. “This government is fully committed to seeing that data centres in Iceland are competitive with those in Europe,” she said. “It provides jobs and a way to put our good energy to use – and it goes well with the data centre industry’s goal to reduce its carbon footprint.”

Do you know all about Green IT? Take our quiz!