By Coffin, Bill; Quinn, Lawrence Richter
Risk Management , Vol. 49, No. 10
Knowledge is power, or so the axiom goes. This is no truer than in the risk management industry, which has to handle an increasingly mind-numbing array of information. Risk managers must collect whatever data they can, analyze it and distribute it to a global base. For many, data management includes premium numbers; data on locations, vehicles and human resources; exposure analyses; policy and coverage management; loss and claims data; and loss forecasting.
Thankfully, technology has improved the efficiency of these processes. The Internet provides an electronic exchange among risk managers, brokers and insurers. Intranets offer an efficient, secure exchange of data between an enterprise's worldwide locations and its central risk management office.
But there is a problem. The success of any of these systems largely depends on the information provided to risk managers by their commercial insurance brokers, third party administrators (TPAs) and insurance carriers. And therein lies the rub. For various reasons, insurers and other outside parties often are unwilling or unable to give risk managers the loss and claims data they need to do their job more efficiently. It is a problem that has dogged risk managers for years, and for some in the risk management community, the situation is reaching a head.
Does Anyone Have the Information?
One big issue risk managers must overcome when chasing their loss and claims information is specificity, according to Vincent Ohva, vice president and research group director of Stamford, Connecticut-based Gartner Financial Services.
"Risk managers often buy a risk management information system (RMIS) to slice and dice the data so they can run loss projections," Oliva says, "but the historical data they get from insurers isn't very granular, and it makes the risk manager's job very hard."
By granularity, Oliva refers to the specificity of loss data, or in his words, "how deep the data goes." The more granular the data, the more it has been broken down, and the easier it is for a risk manager to pick and choose certain elements and run specific analyses of it.
"Let's say you've got fifteen claims in your packaging division that aggregated one million dollars in reserves and paid losses," Oliva says. "If your loss and claims information is really granular, you can dig down on that information and get not just the total claims and loss figures for your pack, aging division, but within that, the type of each loss, the time it took to settle them, the number of settlements versus judgments and so on. If you're an insurer, broker or TPA, you have to be able to give this kind of data. Just giving summaries won't do risk managers much good."
Sometimes, details are not the problem. An outright lack of useful information is, says attorney Linda Lamel, former CEO of New York-based Claims On Line, Inc. What risk managers know about their loss history is whatever data insurers, brokers and TPAs provide. In some cases, the data made available is virtually useless to the risk manager.
"When I was an insurance regulator, it was usual for auto insurers to use gender and marital status when they rated comprehensive auto insurance," Lamel says. "When the department asked what was the relevance of that data, the insurers admitted there was no causal relationship between that data and any sources of loss, and so they removed them as rating parameters. That always stood out to me. It was something they were able to collect and there were actuaries trying to make rates off of it, but it made no difference."
Another example Lamel offers involves the efforts of New York's governor to reduce the amount of drinking and driving in the state. As a way of drumming up support for the initiative, he decided to show how expensive this kind of behavior was. For that, he went to the state's insurance companies for data on DWI-related losses. …