Best tips for risk management


RMIS data

Knowledge is power, or so the axiom goes.broker can solve. Risk managers know that no
This is no truer than in the risk managementmatter how hard they work to improve their
industry, which has to handle an increasinglyown data management systems, Deragon says,
mind-numbing array of information. Riskthey 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 globalresult is an "it's not worth it" attitude in
base. For many, data management includesthe  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 andAssociation 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 thestandard they are developing is very
efficiency of these processes. The Internetdetailed. (See "Advancements in Claims Data
provides an electronic exchange among riskStandards," p.20.) Those that adhere to it
managers, brokers and insurers. Intranetsgain a great deal of functionality from their
offer an efficient, secure exchange of datadata, but adopting the standard requires a
between an enterprise's worldwide locationslot 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 ofof  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, thirddo is to step back and collect their own
party administrators (TPAs) and insurancedata, regardless of what goes to the broker,
carriers. And therein lies the rub. Forand keep it in their own in-house data
various reasons, insurers and other outsidemanagement system," Deragon says. "Some
parties often are unwilling or unable to givesophisticated risk managers are pushing for
risk managers the loss and claims data theythat already. But getting support for it
need to do their job more efficiently. It ismight be difficult, especially since risk
a problem that has dogged risk managers formanagement is not always at the top of the
years, and for some in the risk managementexecutive  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 overcomeand the technology to deliver it to you. But
when chasing their loss and claimswhen you ask for it, the carrier refuses.
information is specificity, according toWhat  do  you  do?
Vincent Oliva, vice president and research
group director of Stamford, Connecticut-basedMost 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 managementhowever, insist that once such data comes to
information system (RMIS) to slice and dicethem, 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 thepertinent 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 granularinformation, 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 toclient-owned data regardless of whose
pick and choose certain elements and runcomputer 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 youra carrier, broker or TPA is a specious
packaging division that aggregated oneargument,"  he  says.
million dollars in reserves and paid losses,"
Oliva says. "If your loss and claimsThe argument becomes less clear, however,
information is really granular, you can digwhen the insurance company, broker or TPA
down on that information and get not just thetakes the data and adds value to it by
total claims and loss figures for yourapplying proprietary processes, analytics or
packaging division, but within that, the typeactuarial evaluations. Then, Hackenburg says,
of each loss, the time it took to settleownership becomes an issue that requires a
them, the number of settlements versusconsiderable 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 giveHackenburg suggests that once a client pays
this kind of data. Just giving summariesconsideration, 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. Anproperty  has  been  applied.
outright lack of useful information is, says
attorney Linda Lamel, former CEO of NewFor example, a property insurer may draw and
York-based Claims On Line, Inc. What riskdevelop maps of the locations it is
managers know about their loss history isinsuring. These so-called fire maps contain
whatever data insurers, brokers and TPAsinformation about the construction,
provide. In some cases, the data madeoccupancy, various exposures-both from
available is virtually useless to the riskinternal operations and external forces-and
manager.available protection. The maps ostensibly
help the property insurer underwrite those
"When I was an insurance regulator, it wasrisks, and many carriers would consider them
usual for auto insurers to use gender andto be their property. But given that they are
marital status when they rated comprehensivemaps of the client's facility, they could
auto insurance," Lamel says. "When thealso be used to improve the client's own loss
department asked what was the relevance ofprevention processes, loss control methods
that data, the insurers admitted there was noand maybe even its production techniques. In
causal relationship between that data and anythis regard, the maps are as much an asset to
sources of loss, and so they removed them asthe  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 tocompany so the insurance company could make
make rates off of it, but it made nothose 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 theInsurers 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 theclients only empowers those accounts to use
initiative, he decided to show how expensivetheir loss data as a price guide and shop
this kind of behavior was. For that, he wentaround for a better deal from another
to the state's insurance companies for datacarrier.
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 possiblyworld of Adams and The Wealth of Nations?"
denying coverage to drivers with a history ofHackenburg asks. "At the end of the day,
DWI," Lamel says. "What we found is when autoknowledge is power, and the insurance
insurers got claim forms, they did not havecompanies have got to figure out ways of
the space on them to indicate whether or notpartnering with their clients and provide
the driver had been drinking, so they had nosuperior 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 betheir business to a carrier, broker or TPA
thought of as an information industry, but itwho  is not quite so stingy with information.
still has plenty of room to improve,
especially when it comes to having the kindLamel 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  Problembe how agents and brokers look at things, and
plenty of carriers see agents and brokers as
Another element of the data problem is thetheir 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 theclient, and if the carriers are smart, they
so-called legacy computer systems manywill 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 overLamel points out that some brokers,
forty years ago, the machines they investedespecially those keen to gain a competitive
in were huge and costly. As insurersedge, have become very willing not only to
accumulated and stored vast amounts of datashare information with risk managers, but to
on these increasingly dated and ricketytailor it for their clients' specific needs.
machines, they had to choose whether toMany smaller brokers have made this their
invest in new, more compatible systems andtrademark, as have several larger players,
transfer all of their data, or simplyincluding  Willis,  Gallagher  and  Sedgwick.
continue to patch and upgrade their legacy
systems. Largely as a matter of cost, manyGaining  Leverage
insurers have opted to stay with their
existing systems. That means, however, aFor those risk managers with a carrier,
crippling data incompatibility-most legacybroker or TPA that will still not share loss
systems cannot share information with otherdata, 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 andshe 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 evenfor things that might not otherwise be
worse. This is especially true for riskavailable to other accounts. In this case,
managers who have multiple accounts withthe leverage of being a key account is
multiple insurers and may have had accountscritical."
with many other third parties over the years.
If each company maintains information in aBut what is a risk manager without a major or
different format, the risk manager is leftlong-term account to do? The answer, says
with the impossible task of homogenizing allHackenburg, is to spend plenty of time up
of that information in order to runfront with the carrier, broker or TPA before
historical loss analyses and makeany 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 dataonce the relationship ends. "Call it a
formats and to develop free and clear accessprenuptial  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 ofHackenburg says. "When somebody is after your
consistence, reducing costs over time becausebusiness, that's when they are most willing
everybody's doing things in a consistentto negotiate. Once you're hooked, things may
fashion. The analytics applied to consistentnot  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, aHeaven. St. Peter gives the man a one-day
Nashville, Tennessee-based insurancetour beyond the Pearly Gates, which,
technology consulting firm, agrees, sayingunsurprisingly, seems like a wonderful place
that getting usable information from ato spend eternity. It is beautiful,
carrier is akin to pulling teeth. From hiscomfortable and serene. But before letting
point of view, the problem is that thethe man in, St. Peter gives him a day to tour
insurance industry's early enthusiasm forHell so he can make an informed decision as
computer technology has waned, and now manyto where he would like to go. The man agrees
carriers are content merely to maintain theand goes to Hell. To his surprise, as nice as
systems they have, investing the bulk ofHeaven is, Hell is much better. There are
their energy into reserves and marketraucous parties, all his friends are there,
conditions. Working on data standards isand 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 amonghe arrives, there are no parties, only fire
clients, many carriers are still notand brimstone. Bewildered, the man asks
interested in pursuing it," Deragon says.Lucifer why things suddenly became so
Because companies' loss data often is spreaddifferent. Lucifer simply smiles and answers,
out among various insurance carriers and"Yesterday, you were a prospect. Today, you
brokers, data incompatibility becomes aare a client."
systemic problem that no one insurer or



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