Technology In-Depth Series (Part 2): The Cloud Opens Up for the Middle Market
By PATRICIA VOWINKEL, who has worked for national media outlets for more than 20 years. TOM STARNER contributed to this story.
When it comes to risk management information systems (RMIS), it seems some people have had their head in the clouds lately.
Well, make that in the cloud, as in cloud computing, a fancy new way of saying Internet-based computing. Cloud computing, which means shared resources, software and data are provided tocomputers and other devices on demand via the web, is starting to make its presence felt in the world of RMIS--especially with middle-market companies.
Why the middle market? Because in risk management technology, there typically existed the haves and the have-nots. The haves--large U.S. businesses--used RMIS technology for a long time, as risk managers have had their choice of high-cost systems from large vendors.
Because of the cost considerations, middle-market companies often depended on an Excel spreadsheet for their risk analysis technology.
"They have had the carrier system, which is a claim system, not a risk management information system," said Dorien Smithson, executive vice president in the Willis Strategic Outcomes Practice, noting that the carrier claim systems offer information about a company's claims with that insurer, but not the other data typically available with a real risk management information system.
Even a basic, no-frills RMIS can run in the high five figures to low six figures. While that may not be a problem for a larger company, for a middle-market company in which the chief financial officer often wears multiple hats, including risk manager, that usually puts a risk management information system out of reach.
"They'll just look at you cross-eyed if you are talking about $100,000 or up," said David Tweedy, practice leader in risk information with Albert Risk Management Consultants in Needham, Mass.
As cloud computing emerges, many vendors, including some new cloud-only risk management information system providers, are giving the middle market a new opportunity at getting into this lower cost, beneficial technology.
Traditional RMIS vendors have offered a "cloud-like" option to customers for several years, some in the middle market. But, in those cases, companies such as CS STARS, Aon eSolutions, CSC Riskmaster, Risk Sciences Group and others offer what could be called "private" cloud-based solutions. These are not delivered via the public Internet, rather over proprietary networks that look identical to cloud-based RMIS offerings.
On the other hand, companies such as Marietta, Ga.-based Riskonnect Inc., and Chicago-based Origami Risk LLC use the public Internet to run their RMIS platforms, with Riskconnect running on the Salesforce.com's Force.com cloud platform and Origami Risk running on the Amazon.com cloud platform.
Rich Carreau, executive vice president of CSC's Financial Services Group, said CSC Riskmaster's cloud-computing strategy is to offer a portfolio of insurance-related business solutions accompanied by consulting support, software services and a scalable operating platform. Clients may choose an on-premise deployment, managed hosting and in the near future a cloud-based, on-demand, multitenant service.
"We believe CSC's cloud offerings will continue to provide a nimble way to reach various markets with that message as well as present effortless approaches to on-board with our environment," Carreau said.
Eric Wild, CS STARS LLC's chief information officer, agreed that cloud computing offers lower cost of entry and clients are looking for the easy tech footprint.
"We have been using a cloud-based application for 10 years starting with our ASP offering," Wild said. "But we host and manage it over 'private cloud,' which does not use the public Internet."
CS STARS has about 1,000 clients that include large enterprise companies and some in the small and medium category as well, and Wild expects the company will expand in the middle market via its cloud-based option.
"Our new RMIS takes advantage of the capabilities of cloud computing, but we also have been using virtualization technologies on demand for several years," said Brenda Rarick, senior vice president and managing director at Risk Sciences Group, an independent RMIS provider.
In terms of the middle market, RSG's RMIS platform, called Dmitri, includes an affordable cloud-based design for the middle-tier users, she said. At Aon e-Solutions, Paul Holden, the chief information officer, said the company's business model lends itself to large and middle-market clients.
"And, because of the flexibility and scalability of our model and platform, we are able to cost effectively service small customers to middle market to Fortune 100 companies," Holden said.
Each of the larger vendors cite data security as the main drawback to using the public Internet, saying that their clients are not comfortable knowing their data, much of it risk-related or highly regulated by law (for example, hospital patient data), could potentially be at risk.
"The newer RMIS vendors are using a public cloud via Force.com or Amazon.com with a risk and insurance solution mixed in," Holden said. "The basic idea for those vendors is to let the cloud computing provider worry about data security, but our clients are concerned over that aspect of the public Internet.
"With our private cloud option, we are on the hook for data security end to end," he said. "There are not a lot of major companies interested in putting that type of data out in the public space."
Holden said that RMIS buyers looking for a bargain should do their due diligence to make sure all aspects of data security are in place before making a decision on using a specific cloud computing solution.
Stephen Malloy, who heads information technology at Porter & Curtis, a consultative commercial insurance broker and risk management services provider in Media, Pa., said cloud-based systems can provide huge cost savings for users.
It can be "very difficult to maintain the data center and keep your expenses even close to low," Malloy said. The auditing requirements alone can be "gigantically expensive," but are available instantly on systems on the cloud.
"The negative is you give up control," he said. Some companies, he said, have been burned by bad customer service experiences in the past and don't want to have to rely on their vendor to respond when there are problems.
Porter & Curtis will begin using an Origami system with its third-party administrator in November for data aggregation and claims management, Malloy said. For a risk management information system, the firm uses its own homegrown system called Net Info Now, developed to meet its own needs and the needs of its clients.
Cloud-based systems are less expensive for several reasons. The opportunity to start from scratch is significant.
"When I was designing this new piece of technology, my partners and I started off with a list that we called: 'If we knew then what we know now, what would we have done differently,' " said Bob Petrie, chief executive officer of Origami.
Another advantage is that these cloud-based systems are easy to configure, meaning that users are much less dependent on a vendor's programmers to set up their systems and make changes.
"We started with the idea that one of the drivers of complexity and expense was the fact that some of our competitors needed programmers to make changes to the system as opposed to end users," Petrie said.
Systems that are on the cloud also experience fewer bugs and technical difficulties, said Bob Morrell, chief executive of Riskonnect.
"Our cloud computing provider provides us with a platform that is of a far higher degree of quality than the traditional software vendors," Morrell said. "We live in this fantasy world that other vendors would love to live in and so we don't have to deal with defects."
Vendors that have legacy systems are faced with software bugs whenever they come out with new releases, Morrell said.
"The core reason for that is with traditional software development, you have to take all the money you get from your clients and that's what feeds your research and development," he said.
A RMIS vendor might put half of its revenue into research and development, Morrell said. Riskonnect, because of its relationship with Salesforce.com, gets the benefit of Force.com's hardware, operating systems, database software and, on top of that, its massive investment in research and development.
"Everything we build--incident intake, premium allocation systems, exposure gathering, for example--sits on their platform," Morrell said. "What that means in terms of solutions for the risk manager, we develop it much faster and the quality at which it's delivered is dramatically better."
This emerging technology also is helping to wring costs out of the risk management information system and put it more within the reach of the middle market.
Origami and Riskonnect are targeting the middle market in different ways.
Riskonnect, for instance, is working with insurance broker Willis Group, which will package and resell a system as Willis DataWize.
"We have a lot of middle-market clients and we wanted to use our scale to bring technology to these middle-market clients at a price that was not available to them in the past," Willis' Smithson said. "We've got that design in place and are ready to go to market with that."
Origami on the other hand, is targeting smaller insurance brokers that do not have the resources to develop a RMIS of their own and yet do not want to have to use a competitor's system, either.
"There are hundreds of brokers that have clients that are looking for risk technology solutions that are unwilling to have their clients' risk data be available to a rival broker," said Petrie of Origami.
"We've got 15 brokers that we are essentially acting as their RMIS system without them having to make the investment and take the risk to build their own technology and that really is a novel idea or concept in the marketplace."
To attract the attention of the middle market, the price of a RMIS has to be in the range of about $10,000 to $25,000, said Tweedy, the risk management consultant.
Systems that sell for $50,000 or $60,000 may be a bargain in the RMIS world, but are still far too expensive for many in the middle market.
"If they can get it into the $10,000 to $15,000--$25,000--tops, they'd be in a much better position to get acceptance by an individual middle market," Tweedy said.
Origami's Petrie said the price of the company's RMIS can get pretty low.
"Our pricing starts at literally a third of what larger vendors charge and we have clients that are paying much less than that depending on what mix of services they are buying from us," he said.
How affordable will the DataWize RMIS be? The difference in cost is about half the price of the standard system, Smithson said.
"These two (Riskonnect and Origami) are the ones that are going to be the pioneers, closely followed by the others," Tweedy said. "Everyone talks about getting to the middle market, but no one does."
September 15, 2010
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