By Ara C. Trembly
It's no secret that in the current tight market and lackluster economy, technology has been the answer for those in insurance who want to remain competitive and position their companies for future growth. But what about technologies that have been around for years, like risk management information systems?
Have recent technology advancements, such as the move to more mobile platforms and the growth of cloud applications, made a difference for RMIS? How are insurers, insureds, brokers and others using risk information management systems today, and how has that changed in recent years?
William Montanez, director of risk management for ACE Hardware Corp. and a Risk and Insurance Management Society Inc. board member said that companies and the insurance industry are using risk management information systems in a variety of ways.
These include marketing to and identifying prospective clients, rounding out or serving existing accounts, and accumulating data on competitors in order to measure themselves against others.
"Brokers may want to use their own niches to benchmark best practices," he said. Other uses include monitoring price trends and assisting risk managers who need to evaluate claims, source of losses, and types of losses. Risk management information systems allow users to "slice and dice" such information in many ways, he said.
David Tweedy, risk management information systems solutions practice director of Albert Risk Management Consultants' Risk Management Information Systems practice, said insurance companies, brokers and risk managers continue to use risk management information systems to help administer claims, evaluate exposures, process policies and report incidents similar to the way they've done it in the past.
"A key difference is that the technology has enhanced their uses in many more ways," he said. "Use of PDAs and tablets has mushroomed.People are more connected."
Tweedy also points out that claims investigations are enhanced by a greater ability to process digital, video, and audio files and attach them to claim files.
"Claims can be reported in multiple ways through these devices," he said. "The ability to use private and public clouds expands the computing and storage power of these systems in a far greater way than the recent past."
Donald Light, senior analyst for Celent, part of Marsh & McLennan Cos. Inc., which offers risk management information systems solutions, notes that insurers and brokers continue to provide such systems to their insured/self-insured/risk retention customers.
"The basic purpose of the systems has not changed that much: to create a common, data-based view of losses and exposures to serve as the basis of risk management programs, and to lower future losses," he said. "The biggest change in recent years is the introduction of better business intelligence and analytics capabilities -- which reflect trends throughout insurance technology."
Update or Rebuild?
Given the obvious influence of newer technologies on risk management information systems, how are insurance users responding? Are systems being updated or completely replaced?
"Changes are seen more with the unbundled systems -- those that stay with the client regardless of insurer or broker affiliation, such as CSStars; Risk Console and iVOS, and Origami Risk and Riskonnect," said Tweedy."There is more direct competition there."
"Bundled" systems, he said, are also improving, but that is a slower process with insurer based-systems from big, traditional carriers like Zurich, CNA and The Hartford.
Light points out, however, that since the customers, insureds and self-insureds, have a big investment in the data and analyses that have been done over the years, "it may be difficult to outright replace the systems, without some rather compelling alternatives."
Montanez, however, said the industry is seeing both alternatives. "The trend is more wholesale replacement, just to take advantage of the changing technology," he said. "It's changing so quickly that unless you change (your systems) every three to five years, you're dead in the water.
He adds that some vendors have added new predictive modeling capabilities to their products. "A lot of things that used to be just with the actuarial folks are now being promoted into the mainstream of risk management," he said.
Another interesting question is whether RMIS users are purchasing externally-sourced RMIS systems or developing or updating in-house applications.
"My feeling is that it is more external," said Montanez. "That gives you more flexibility and access to a lot more resources. Cloud computing comes to mind, and other capabilities you don't have in-house. Risk managers usually don't have access to top-level IT resources, so for me it is much more efficient to outsource the function, versus bringing it in-house."
Montanez said he finds it preferable to work with an externally-sourced, user-friendly risk management information systems vendor, as opposed to "sitting on the IT Department's priority list and waiting to be helped. I've learned that from experience. We [in risk management] are not a priority."
Light agrees that, "externally-sourced RMIS are the rule."
"There is more use of application services providers rather than self-hosted solutions for the unbundled RMIS marketplace," Tweedy states."There is a continued movement to outside-provided RMIS just due to the complexity involved.I don't think many risk managers, brokers or insurers try to 'build their own' much anymore.Insurers do, however, tend to keep old legacy claim systems around, probably too long.The same could be said of third-party claim administrators.The cost of a new system is very expensive for these organizations."
Have the recent spate of technological improvements made for better risk assessment and management?
"The tools to conduct risk assessment have improved significantly in recent years, with the advent of GPS/mapping of risk exposures, greater use of PDAs and other devices, and the general availability to the Internet via Wi-Fi and 3- and 4G networks," Tweedy said. "I'm not sure the actual science of risk assessment has changed much unless you include some of the entries into enterprise risk mapping."
"The larger and more sophisticated insureds/self-insureds have taken advantage of the improved business intelligence and analytics capabilities in risk management information systems products," Light said.
Montanez agrees that risk assessment has markedly improved. "There is a lot more discipline to the whole process of risk assessment," he said. He notes that in catastrophe modeling, for example, newer technologies allow more data and more precise data to be gathered and used -- thus yielding better results.
"When we have CAT models for ACE, we try to (include) as many details as we can," Montanez said. The increased level of detail can make a significant difference in the results, he said.
Despite obvious improvements in technology and results, challenges remain for those who use risk management information systems.
Light sees three primary difficulties: data integrity (Is all the data that should be there, actually there; and is it accurate?); agreeing on which analytic methods will be used, and interpretation of results.
"The biggest challenge for us," said Montanez, "is the accumulation of detailed information and having that put into a computer model. It takes a lot of time." Yet another hurdle, he notes, is the inherent "unpredictability of catastrophic events."
Tweedy takes a cautionary view. He said that as risk management information systems processes become faster and more accurate, this will have a major impact on the success of an individual broker or insurer.
"Technology can aid this process," Tweedy said, "however, computers and systems don't really 'solve' a problem, per se; they make something faster and more accurate. If the process is flawed in the first place, the automation will simply make it wrong faster."
Projecting future trends in risk management information systems, Light notes that, "Celent sees the business intelligence/analytics trend continuing -- with more powerful tools for larger insureds/self-insureds; and more user-friendly workstations for smaller risk management shops."
Tweedy predicts more partnerships with specific technology vendors to augment and improve existing risk assessment/identification processes.
There will be "a lot more predictive modeling," in risk management information systems, including more sophisticated analytics, and "much more" scenario modeling, Montanez said.
"There will be tweaking of the catastrophe models as more and more as data is collected and events happen," forcing adjustments to real and anticipated environmental changes, he said.
"There will be more mobile applications as well," Montanez said. "We'll be able to do this on the fly in real time. It's going to be a lot more accessible; it's going to be part of our toolbox."
ARA C. TREMBLY is founder of The Tech Consultant and The Rogue Guru Blog. He can be reached at email@example.com.
May 1, 2012
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