The demands on risk managers keep growing all the time, and they, in turn, are demanding more from their risk management information systems. That has RMIS vendors, from broker-backed firms to big software companies and smaller independents, striving to keep ahead of the technology curve while battling for risk managers' attention--d budgets.
Not only is the technology changing, so is the competitive landscape.
Independent vendors such as Computer Sciences Corp. and smaller companies face more competition from top-tier brokers Marsh Inc. and Aon Corp., both of which swept up smaller RMIS firms last year. And as risk management applications take a more prominent role in corporations, software powerhouses such as SAP AG look to play a growing role in integrating those applications into wider corporate systems. "There's been a lot of consolidation," says Jeff Ninowski, program manager for the self-insured market for CSC, a major independent vendor with its RiskMaster application. "A lot of the smaller RMIS vendors are being purchased by larger entities."
Among the big changes was Aon's purchase of Atlanta-based specialty risk management information company RiskLabs from AIG's American Home Assurance Co. That signaled a big move by the No. 2 broker into the RMIS world. Marsh, the biggest broker, came back a few months later with the purchase of Texas-based claims management firm Corporate Systems Inc. to add to its popular Stars application.
"Basically the demand for risk technology and services is increasing. So we think that the mix of competitors is likely to change going forward," says Robert Petrie, founder and chief executive of
Marsh's CS Stars LLC.
The bigger vendors are taking aim not just at each other and markets served by smaller rivals, but also at companies still running costly homebuilt legacy systems, and at overseas markets, where they see opportunities in Europe as well as in global integration of corporate risk management systems.
Driving the changes in the competitive landscape is the expanding corporate role for risk managers and the desire to adapt risk management disciplines to the wider corporate sphere.
"Risk management as a practice is growing in scope and definition to the point where you're starting to see chief risk officers in organizations," says Thomas King, industry principal for SAP's financial services division, focusing on the insurance industry. The world's third-largest software company, SAP, sees its offerings in wider corporate systems as complementary to dedicated risk management applications.
In the past, risk management was more limited to defining liabilities, preventing losses and buying insurance, but now many risk managers are taking a more strategic role.
"That has definitely changed," King says. "Risk managers are getting involved in operational aspects of how the business is run. They're getting involved in business decisions associated with the potential strategic risks a company might be facing. They're managing financial risk."
In terms of technology, that means risk managers need more powerful tools.
"What we're finding is the risk manager being pulled into more diverse areas of their organization then they ever have been before, and they need more help around the analytics and the aggregation of information to help support recommendations," says Mark Stephens, managing director of Aon eSolutions.
Those more powerful tools, in turn, are helping to expand the role of risk managers and the use of RMIS systems within an enterprise. "As the industry evolves, we're getting into more of the enterprise risk model; and software vendors, CSC included, have to be aware of that and have to be keen on the fact that we need to provide not only the tools to capture the data but also the tools for data mining and reporting," Ninowski says.
Among the big changes is the move to browserbased systems and hosted applications that can be accessed via the Internet. Those moves also have helped to widen the scope and role of risk management systems in a corporation by making information more widely available.
"What we're seeing with fully Internet-based systems is the ability for risk management to send and receive data throughout the entire organization is now possible. That's not just changing what we sell. That's changing what risk management departments actually do," says Robert Morrell, chief technology officer of Aon Risk Laboratories.
Developing the high-powered tools to meet the new analytical needs, however, requires a strong commitment to investing in research and development and the wherewithal to do it.
"Our goal is enhanced R&D," says Petrie. "If you look at the industry, it wasn't too long ago there were 15 or 20 firms in this space, all tiny and all investing all of their R&D dollars in basically the same basic reports, the same basic search screens, the same basic features.
"What we're trying to do is to ?really advance the state of the art in a much more dramatic way than the industry has been able to in the past," Petrie says.
FINDING THE RIGHT NICHE
As companies with deeper pockets take a bigger role, smaller companies may find it harder not only to remain competitive in sales, but also in technology, as a move to higher-powered systems demands heavier investments in R&D.
"It's very difficult in the marketplace right now to do the old garage company, with three developers acting as the sales, development and service sectors," Ninowski says.
"Given resources and talent pool, it's very difficult for some of the smaller companies to provide all of the expertise that they need to in the marketplace," he says. "That's one of the reasons that some of the smaller players are either focusing on a niche market within the risk management community or they're getting bought up by other companies."
On the other hand, smaller companies can often react to the market more quickly.
"As is the case with smaller firms, though, they are more nimble; they show more interest in and are faster at adjusting to client needs," says Richard Betterley, president of Betterley Risk Consultants.
The secret to competing against the larger firms is finding the right people, keeping them and building a strong team, says Jim Wieland, founder of JW Software. The Missouri-based claims management software company counts among its competitors companies such as CSC, Marsh's CS Stars, Fiserv and Valley Oak Systems.
"You have to be able to produce things faster and better and smarter as a team," Wieland says. "We get a lot of bang for our buck in development with a staff that's very experienced in the product and the market. That helps us compete in bringing new products to the market." Wieland also says smaller firms have some advantages.
"When you evaluate the product and you look at the functionality ? people are going to say the JW Software from a functionality viewpoint is as good a product as the others, and they're also going to say [it's] half the price," Wieland says. "We're also going to differentiate ourselves by saying the support is better, the relationships that we build, and the tenure that we have within the organization are better."
Wieland also says finding the right market niche is critical. "Software firms such as JW will have to continue to find a niche in the marketplace, and excel in that niche," Wieland says.
THE OTHER 90 PERCENT
While the overall market for risk management information applications may look like a niche itself when compared with the wider scope of big front-office and back-office systems, there is still plenty of room for growth. Among those are multinational firms whose risk management systems in separate countries can be brought together globally.
"We see some evidence that large multinational firms are seeing the same things as well--at the world will move to a point where risk data is built globally from the ground up and is available to risk managers both centrally in the home office or by subsidiary or in each country and by people with responsibility on the ground," Petrie says. Companies that still rely on their own homemade systems also offer potential.
"There are an awful lot of companies that still have internally developed risk management information systems that are aging every day," Petrie says.
Another opportunity is provided by RMIS vendors who have gone out of business or have stopped providing updates for their software. "There have been a number or risk information companies that have gone out of business, either completely or functionally in the sense that they have stopped growing and stopped investing, but still have customers on their platform," Petrie says. "The switching costs can be relatively high for RMIS, but we think that as our competitive advantage grows, the willingness of customers to move from a stagnant or obsolete platform to ours will increase."
On top of that, there is still a large base of companies that have yet to be convinced of the value of a risk management system.
"You still have a substantial amount of the market that doesn't understand the value proposition around a RMIS system and the consulting provided about the use of a RMIS system. I'm not sure that even half of the potential marketplace understands the value proposition," Stephens says.
"You have a certain very high level, Fortune 100, Fortune 250 group of risk managers who have a much better understanding than the balance of the market, but the balance of the market is 90 percent of the total market."
MICHAEL FITZPATRICK, a former writer and editor for Reuters, contributes frequently to Risk & Insurance®.
June 1, 2005
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