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Risk managers are demanding more of the technology providers and systems they use as the field of risk management evolves.
Once content with risk management information systems that simply aided the claims process, many risk managers now are looking for off-the-shelf and customized solutions to help them implement more sophisticated programs that tackle enterprisewide risks.
Enterprise risk management has been touted for more than 20 years, but organizations historically were challenged regarding how to quantify the value vs. the cost of an ERM initiative. After all, how do you measure the value of avoiding a “risk” versus incurring an actual loss?
The answer to that question is now much closer at hand.
The dramatic leap in online interactive technology since the turn of the century has changed the risk landscape.
Many risk managers today not only see ERM as cost-effective, but believe that technology has enabled them to adopt proactive risk management.
As ERM has caught on, some risk managers now perceive the management of risk as providing a competitive edge to an enterprise.
A 2015 independent survey conducted by Queens University in Kingston, Ontario, and the Edinburgh Business School based on data collected by the New Yorkbased Risk & Insurance Management Society Inc. from almost 25,000 participants across 60 countries suggests that enterprises that implement mature risk management programs have achieved a 25% market value premium — stock market value — to their competitors over the past five years.
The data used in the survey was compiled from the responses of risk managers having undertaken the RIMS Risk Maturity Model, a free risk assessment technology tool designed to determine the effectiveness of their risk management programs developed by Boston-based LogicManager Inc.
Risk management information systems have been used for decades. Steven Minsky, CEO of LogicManager, said “early risk management systems” were designed to manage insurance coverage and claims.
“RMIS really only manages the insurable risk, which accounts for about 10% of the risk facing most enterprises.
Which is not to say that the other 90% of the inherent risk within the organization is not manageable through current ERM technology — the point of the latter is to mitigate risk events rather than report on losses already incurred,” Mr. Minsky said.
Mark Dorn, CEO of David Corp., a RMIS and ERM technology provider located in Wakefield, Massachusetts, said early forms of RMIS were basically claims management programs. However, RMIS technology has evolved, he said, with increased risk management analytical capabilities.
RMIS technology has advanced along with online technological development in terms of real-time access and third-party data storage, Mr. Dorn said.
“Everyone is drowning in data. Historically, RMIS programs have required a lot of reporting and data storage.
We have developed the means to combine all data into one platform, which reduces data duplication and enables users to respond to risk triggers more quickly,” he said.
Robert Petrie, CEO of Origami Risk L.L.C. in Chicago, also believes that RMIS technology has come a long way from inception. “(RMIS) providers are now building additional functions into their programs, enabling users to manage risk on an enterprise-wide scale,” Mr. Petrie said.
While customizing a RMIS program can prove costly, systems today tend to be highly configurable to accommodate different applications or needs. “We build in parameters/ settings in terms of features and capabilities that are available to all users,” he said.
The modern version of RMIS applications typically allow users to integrate data from across the enterprise, as well as that involving third-party vendors/suppliers, which allows risk managers to identify where losses may arise and take appropriate action, Mr. Petrie said.
As a result, enterprises should be able to reduce operating costs by about 5%, he said.
Risk manager demands
Carol Fox, vice president of strategic initiatives at RIMS, said risk managers work closely with the IT departments.
“I encourage (risk managers) to sit down with their tech department to determine what capabilities can be achieved. You really need this tech input to avoid pitfalls,” she said.
RMIS software solutions are designed to be a cost-effective alternative to custom made ERM technology, Ms. Fox said. And the technology is developing as RMIS providers include mobile applications for their products.
“The biggest change I see happening with regard to RMIS development is full mobility,” she said.
John Phelps, a former RIMS president and director of business risk solutions at Blue Cross and Blue Shield of Florida Inc. in Jacksonville, Florida, said risk managers take care when choosing a RMIS as they are designed for a wide variety of users.
A RMIS can cost $50,000 to more than $100,000, so it’s important to weigh the prospective benefits before making the investment, he said.
Mr. Phelps says every RMIS application has a “basic core” that any customization must be built around.
“I have looked at many (RMIS solutions), and there is no question you have to adapt them to serve your needs,” he said.
In addition, risk managers may need to adapt their own internal processes to suit the RMIS, Mr. Phelps said.
“Unfortunately, this requires populating data fields in such a way to accommodate system needs regardless of how relevant that data is to your internal ERM process … It’s part of the price you pay to achieve the advantages of an interrelational database and reporting. RMIS works for those enterprises looking for broad-based reporting, interrelational logic, automated task management and predictive analysis as part of their ERM program,” he added.
From a claims management perspective, RMIS technology has revolutionized the workplace, said Leonardo Selvaggi, claims manager of the County of Ventura in Ventura, California, “without the technology, we would be back in the 1980s with paper and pen.”
Mr. Selvaggi estimates that the application of RMIS technology has reduced claim processing time by 75%.
“The system does all the background processing, which has reduced claim processing by a day to a day and a half,” he added.
There has been a huge jump ahead in RMIS technology over the past five years, said Jeff Simon, CEO of third-party claims administrator Pegasus Risk Management based in Modesto, California. RMIS technology has become more user-friendly, and the ability to drill down into claims data is a significant benefit in terms of addressing loss trends in a timely manner, he said.
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