| Knowledge is power, or so the axiom goes. | | | | broker can solve. Risk managers know that no |
| This is no truer than in the risk management | | | | matter how hard they work to improve their |
| industry, which has to handle an increasingly | | | | own data management systems, Deragon says, |
| mind-numbing array of information. Risk | | | | they still will be faced with different |
| managers must collect whatever data they can, | | | | formats of data from other companies. The |
| analyze it and distribute it to a global | | | | result is an "it's not worth it" attitude in |
| base. For many, data management includes | | | | the industry. |
| premium numbers; data on locations, vehicles | | | | |
| and human resources; exposure analyses; | | | | Groups like the Pearl River, New York-based |
| policy and coverage management; loss and | | | | Association for Cooperative Operations |
| claims data; and loss forecasting. | | | | Research and Development (ACORD) are making |
| | | | major strides to combat that, but the |
| Thankfully, technology has improved the | | | | standard they are developing is very |
| efficiency of these processes. The Internet | | | | detailed. (See "Advancements in Claims Data |
| provides an electronic exchange among risk | | | | Standards," p.20.) Those that adhere to it |
| managers, brokers and insurers. Intranets | | | | gain a great deal of functionality from their |
| offer an efficient, secure exchange of data | | | | data, but adopting the standard requires a |
| between an enterprise's worldwide locations | | | | lot of effort. As a result, the roll-out rate |
| and its central risk management office. | | | | for data standards will be slow. That does |
| | | | not help risk managers trying to make sense |
| But there is a problem. The success of any of | | | | of their company's loss history now. |
| these systems largely depends on the | | | | |
| information provided to risk managers by | | | | "The best thing for any major corporation to |
| their commercial insurance brokers, third | | | | do is to step back and collect their own |
| party administrators (TPAs) and insurance | | | | data, regardless of what goes to the broker, |
| carriers. And therein lies the rub. For | | | | and keep it in their own in-house data |
| various reasons, insurers and other outside | | | | management system," Deragon says. "Some |
| parties often are unwilling or unable to give | | | | sophisticated risk managers are pushing for |
| risk managers the loss and claims data they | | | | that already. But getting support for it |
| need to do their job more efficiently. It is | | | | might be difficult, especially since risk |
| a problem that has dogged risk managers for | | | | management is not always at the top of the |
| years, and for some in the risk management | | | | executive profile." |
| community, the situation is reaching a head. | | | | |
| | | | Who Owns Your Data? |
| | | | |
| Does Anyone Have the Information? | | | | Pop quiz: You are a risk manager whose |
| | | | carrier has all of the loss data you need, |
| One big issue risk managers must overcome | | | | and the technology to deliver it to you. But |
| when chasing their loss and claims | | | | when you ask for it, the carrier refuses. |
| information is specificity, according to | | | | What do you do? |
| Vincent Oliva, vice president and research | | | | |
| group director of Stamford, Connecticut-based | | | | Most risk managers naturally assume that |
| Gartner Financial Services. | | | | their company owns their claims and loss |
| | | | information. Many insurers, brokers and TPAs, |
| "Risk managers often buy a risk management | | | | however, insist that once such data comes to |
| information system (RMIS) to slice and dice | | | | them, it belongs to them and they have no |
| the data so they can run loss projections," | | | | obligation to return it. |
| Oliva says, "but the historical data they get | | | | |
| from insurers isn't very granular, and it | | | | "The issue of ownership of data has to be |
| makes the risk manager's job very hard." | | | | clarified," Hackenburg says. He believes, as |
| | | | do many risk managers, that any information |
| By granularity, Oliva refers to the | | | | pertinent to the client company's work |
| specificity of loss data, or in his words, | | | | product, insurance program, product |
| "how deep the data goes." The more granular | | | | information, management processes, financial |
| the data, the more it has been broken down, | | | | data and business methods is, in fact, |
| and the easier it is for a risk manager to | | | | client-owned data regardless of whose |
| pick and choose certain elements and run | | | | computer system it is in. "To suggest that a |
| specific analyses of it. | | | | client doesn't own it once it has been |
| | | | partially, wholly or in pieces transferred to |
| "Let's say you've got fifteen claims in your | | | | a carrier, broker or TPA is a specious |
| packaging division that aggregated one | | | | argument," he says. |
| million dollars in reserves and paid losses," | | | | |
| Oliva says. "If your loss and claims | | | | The argument becomes less clear, however, |
| information is really granular, you can dig | | | | when the insurance company, broker or TPA |
| down on that information and get not just the | | | | takes the data and adds value to it by |
| total claims and loss figures for your | | | | applying proprietary processes, analytics or |
| packaging division, but within that, the type | | | | actuarial evaluations. Then, Hackenburg says, |
| of each loss, the time it took to settle | | | | ownership becomes an issue that requires a |
| them, the number of settlements versus | | | | considerable amount of work from all parties |
| judgments and so on. If you're an insurer, | | | | to resolve who owns what. Acknowledging that, |
| broker or TPA, you have to be able to give | | | | Hackenburg suggests that once a client pays |
| this kind of data. Just giving summaries | | | | consideration, fees, premiums and |
| won't do risk managers much good." | | | | commissions, it has also acquired the right |
| | | | of ownership to whatever intellectual |
| Sometimes, details are not the problem. An | | | | property has been applied. |
| outright lack of useful information is, says | | | | |
| attorney Linda Lamel, former CEO of New | | | | For example, a property insurer may draw and |
| York-based Claims On Line, Inc. What risk | | | | develop maps of the locations it is |
| managers know about their loss history is | | | | insuring. These so-called fire maps contain |
| whatever data insurers, brokers and TPAs | | | | information about the construction, |
| provide. In some cases, the data made | | | | occupancy, various exposures-both from |
| available is virtually useless to the risk | | | | internal operations and external forces-and |
| manager. | | | | available protection. The maps ostensibly |
| | | | help the property insurer underwrite those |
| "When I was an insurance regulator, it was | | | | risks, and many carriers would consider them |
| usual for auto insurers to use gender and | | | | to be their property. But given that they are |
| marital status when they rated comprehensive | | | | maps of the client's facility, they could |
| auto insurance," Lamel says. "When the | | | | also be used to improve the client's own loss |
| department asked what was the relevance of | | | | prevention processes, loss control methods |
| that data, the insurers admitted there was no | | | | and maybe even its production techniques. In |
| causal relationship between that data and any | | | | this regard, the maps are as much an asset to |
| sources of loss, and so they removed them as | | | | the client as they are to the insurer. |
| rating parameters. That always stood out to | | | | |
| me. It was something they were able to | | | | "The client paid a premium to the insurance |
| collect and there were actuaries trying to | | | | company so the insurance company could make |
| make rates off of it, but it made no | | | | those maps," Hackenburg says. Thus, the |
| difference." | | | | client could argue the right of ownership to |
| | | | the maps because it paid for them. |
| Another example Lamel offers involves the | | | | |
| efforts of New York's governor to reduce the | | | | Insurers and brokers often counter that idea, |
| amount of drinking and driving in the state. | | | | saying that sharing loss data with their |
| As a way of drumming up support for the | | | | clients only empowers those accounts to use |
| initiative, he decided to show how expensive | | | | their loss data as a price guide and shop |
| this kind of behavior was. For that, he went | | | | around for a better deal from another |
| to the state's insurance companies for data | | | | carrier. |
| on DWI-related losses. "We all thought this | | | | |
| would be the kind of data that auto insurers | | | | "Are we living in a world of Karl Marx or a |
| would have for underwriting and possibly | | | | world of Adams and The Wealth of Nations?" |
| denying coverage to drivers with a history of | | | | Hackenburg asks. "At the end of the day, |
| DWI," Lamel says. "What we found is when auto | | | | knowledge is power, and the insurance |
| insurers got claim forms, they did not have | | | | companies have got to figure out ways of |
| the space on them to indicate whether or not | | | | partnering with their clients and provide |
| the driver had been drinking, so they had no | | | | superior services, including sharing their |
| data on it. None." | | | | loss data with them." Otherwise, he says, |
| | | | clients will grow frustrated and will take |
| This taught Lamel that insurance may be | | | | their business to a carrier, broker or TPA |
| thought of as an information industry, but it | | | | who is not quite so stingy with information. |
| still has plenty of room to improve, | | | | |
| especially when it comes to having the kind | | | | Lamel agrees, noting that insurance buyers do |
| of data risk managers need. | | | | not look at insurance as a commodity anymore, |
| | | | nor do they shop purely on price. "That might |
| The Standard Legacy Problem | | | | be how agents and brokers look at things, and |
| | | | plenty of carriers see agents and brokers as |
| Another element of the data problem is the | | | | their ultimate client," she says. "But in |
| industry's lack of a universal data standard. | | | | this case, the risk manager is the ultimate |
| Major contributors to the situation are the | | | | client, and if the carriers are smart, they |
| so-called legacy computer systems many | | | | will acknowledge that if risk managers must |
| insurance carriers continue to use. | | | | pay extra for access to their own loss data, |
| | | | they will." |
| Although the insurance industry was one of | | | | |
| the first to embrace computer technology over | | | | Lamel points out that some brokers, |
| forty years ago, the machines they invested | | | | especially those keen to gain a competitive |
| in were huge and costly. As insurers | | | | edge, have become very willing not only to |
| accumulated and stored vast amounts of data | | | | share information with risk managers, but to |
| on these increasingly dated and rickety | | | | tailor it for their clients' specific needs. |
| machines, they had to choose whether to | | | | Many smaller brokers have made this their |
| invest in new, more compatible systems and | | | | trademark, as have several larger players, |
| transfer all of their data, or simply | | | | including Willis, Gallagher and Sedgwick. |
| continue to patch and upgrade their legacy | | | | |
| systems. Largely as a matter of cost, many | | | | Gaining Leverage |
| insurers have opted to stay with their | | | | |
| existing systems. That means, however, a | | | | For those risk managers with a carrier, |
| crippling data incompatibility-most legacy | | | | broker or TPA that will still not share loss |
| systems cannot share information with other | | | | data, Lamel suggests there are other options. |
| computer systems. | | | | "If you have buying power, that can really be |
| | | | the key to getting the information you want," |
| Even if they could, insurers, brokers and | | | | she says. "If you are a key account, or if |
| TPAs have different methods of organizing, | | | | you have a twenty-year relationship with your |
| analyzing and running projections on data, | | | | carrier or broker, you can probably negotiate |
| making a bad incompatibility situation even | | | | for things that might not otherwise be |
| worse. This is especially true for risk | | | | available to other accounts. In this case, |
| managers who have multiple accounts with | | | | the leverage of being a key account is |
| multiple insurers and may have had accounts | | | | critical." |
| with many other third parties over the years. | | | | |
| If each company maintains information in a | | | | But what is a risk manager without a major or |
| different format, the risk manager is left | | | | long-term account to do? The answer, says |
| with the impossible task of homogenizing all | | | | Hackenburg, is to spend plenty of time up |
| of that information in order to run | | | | front with the carrier, broker or TPA before |
| historical loss analyses and make | | | | any formal business relationship begins. |
| historically based loss projections. | | | | Define which entity owns what data and what |
| | | | rights of access the client will retain, even |
| "The industry needs to standardize data | | | | once the relationship ends. "Call it a |
| formats and to develop free and clear access | | | | prenuptial agreement," he says. |
| to that data," advises Richard Hackenburg, | | | | |
| CEO of St. Louis-based Willis Missouri Inc. | | | | The key is doing it sooner rather than later. |
| "That way, you can maintain a principle of | | | | Hackenburg says. "When somebody is after your |
| consistence, reducing costs over time because | | | | business, that's when they are most willing |
| everybody's doing things in a consistent | | | | to negotiate. Once you're hooked, things may |
| fashion. The analytics applied to consistent | | | | not always be what they seemed." |
| data will give better forecasts of what is | | | | |
| likely to happen." | | | | To illustrate the point, Hackenburg recalls |
| | | | an old joke in which a man dies and goes to |
| Jay Deragon, chairman of XS Voice, a | | | | Heaven. St. Peter gives the man a one-day |
| Nashville, Tennessee-based insurance | | | | tour beyond the Pearly Gates, which, |
| technology consulting firm, agrees, saying | | | | unsurprisingly, seems like a wonderful place |
| that getting usable information from a | | | | to spend eternity. It is beautiful, |
| carrier is akin to pulling teeth. From his | | | | comfortable and serene. But before letting |
| point of view, the problem is that the | | | | the man in, St. Peter gives him a day to tour |
| insurance industry's early enthusiasm for | | | | Hell so he can make an informed decision as |
| computer technology has waned, and now many | | | | to where he would like to go. The man agrees |
| carriers are content merely to maintain the | | | | and goes to Hell. To his surprise, as nice as |
| systems they have, investing the bulk of | | | | Heaven is, Hell is much better. There are |
| their energy into reserves and market | | | | raucous parties, all his friends are there, |
| conditions. Working on data standards is | | | | and it seems like a really great time. So, |
| simply a low priority. | | | | when the man returns to Heaven, he declines |
| | | | St. Peter's offer and goes back to Hell. When |
| "Even though data sharing is so popular among | | | | he arrives, there are no parties, only fire |
| clients, many carriers are still not | | | | and brimstone. Bewildered, the man asks |
| interested in pursuing it," Deragon says. | | | | Lucifer why things suddenly became so |
| Because companies' loss data often is spread | | | | different. Lucifer simply smiles and answers, |
| out among various insurance carriers and | | | | "Yesterday, you were a prospect. Today, you |
| brokers, data incompatibility becomes a | | | | are a client." |
| systemic problem that no one insurer or | | | | |