By ALLEN MONROE
The Beginning. Computer systems and services for risk management applications emerged in the 1970s as a better way of organizing and consolidating claims information. The earliest systems ran on mainframe computers, and produced improved loss runs, typically for casualty lines of insurance. Such loss runs were able to incorporate greater detail on claims,including causative factors. They also were capable of sorting data in numerous ways, facilitating identification of loss costs by profit center, by product, bycause, and by state. As the amount of information in the new format grew, it became apparent that it could serve as a valuable tool for identifying patterns and trends in loss costs. Risk managers sought to analyze the new information inorder to improve the accuracy of budgeting and to find ways of reducing loss frequency and severity.
Computer Terminals in the Risk Management Department. Then, by the 1980s numerous organizations significantly increased the amount of risk they retain, through a variety of methods, including high deductibles, self insurance, and captives. Risk managers needed better ways of projecting and budgeting for these newly-retained, sometimes volatile loss-related costs. Well-designed loss reports and analytical tools became increasingly important.System designers began to incorporate sophisticated "data base management system" software to make it possible to sort the claims information in an unlimited variety of ways, as well as perform ad-hoc queries and searches. Withthese capabilities, printed loss runs became less important, because the computer data base became a repository from which information could be extracted in virtually any format. A variety of service bureau vendors provided loss information system services, usually on a timesharing basis. Risk management departments obtained computer terminals, and accessed the vendors' host computer, usually over proprietary networks.
The Risk Management Information System. The advent of "relational data base" software makes all kinds of information much easier to access,organize, and consolidate. Entirely different types of data can be "related"to each other, without having to pre-design each of the possible relationships.This makes it feasible for risk management information systems to incorporate additional types of data, such as loss exposures, insurance policies, and the corporate organization structure past and present, rather than being limited to claims files only. Concurrently, advances in microprocessors made it unnecessary for newer types of computers to reside in a special, air conditioned room,tended to by special teams of experts. "Personal computers" began to proliferate, and software could be written for large numbers of users, sharing relatively homogeneous hardware and systems software. This changed the economics of software development forever. Large, customized programming efforts began to be replaced with software that is "published" for use by many users,thereby spreading the developmental costs over a broader base. Systems designed for use by risk managers that incorporate diverse types of information in a relational data base became known as "Risk Management Information Systems"(RMIS).
Standardization, Inter-Operability, and Explosive Growth. Risk managers have benefited from these trends, as they are able to harness the power of systems that took millions of dollars to create, but only tens of thousands of dollars to purchase or license. Combined with "desktop"applications and "groupware" for those connected to local areacomputer networks, Risk Management Information Systems provide much greater control over the types of information and processes that the risk management function entails. Since the mid-1980s, these systems have evolved along with advances in desktop computing technology. By 1995, most of the more advanced systems incorporated a "client/server" architecture, using a standardized SQL-compliant data base on the "server," and a graphical user interface such as Macintosh or Windows on the "client" computers used by risk managers. The "client/server architecture makes it easier to access other types of corporate information that may reside on other SQL-compliant databases and even to select for the RMIS whatever brand of database software that is already in general use within one's organization. As the typical RMIS has become inter-operable with the full range of desktopbusiness software, its acceptance has skyrocketed. Several RMIS vendors report growth rates approaching 100% in 1995.
Onward to Greater Functionality. Now that the major efforts toconvert risk management systems to incorporate these new technologies largely have been completed, many of the system vendors and users are focusing on broadening the functionality of their RMIS. Many of the systems are being adapted to new uses, and, in some cases are being customized to risk managers'individual needs. The uses of the more comprehensive systems include:
- Claims administration, tracking, and analysis, including automated check processing
- Interfacing claims data with insurance carriers and TPAs
- Insurance policy records
- Organization structure information tracking, including both the currentorganization and previous structures. This includes tracking of acquisitions and divestitures, and the claims and exposures related to such entities.
- Consolidation of risk data from diverse sources, such as insured and self insured Workers' Compensation programs, in support of cost containment, risk analysis, safety and loss control, financial reporting, cost allocation, loss allocation, loss forecasting, and vendor performance benchmarking
- Allocation of loss and insurance costs to profit centers
- Certificates of insurance issuance and tracking. This includes both incoming and outgoing certificates.
- Bonds: Issuance and tracking
- Workers' Compensation First Report of Injury forms generation, submission, and management of data
- Risk exposure tracking and measurement
- Analysis of loss trends per exposure for loss control and budgeting purposes
- Modeling of risk financing alternatives
- Generation of risk management departmental reports, letters, and graphical presentations
- Executive information system
- Communication with other departments and subsidiaries within theorganization, as well as with other organizations, such as insurers and brokers
- Medical cost containment
- Management of legal costs
- Access to sources of text-based information, archives, and libraries for risk managers
There are numerous examples of Risk Management Information Systems and other technology tools are being used by risk managers in new and creative ways. Some interesting cases follow.
Reduction of Workers' Compensation medical costs is a priority of Phil Bauccio, Risk and Benefits Manager of Suffolk County, New York. He says, " I'm not a computer maven, but I know that if we can be more efficient in compiling and tracking loss information, then we can be more effective in preventing the loss from occurring. The more you know about what is causing the claim, the more able you are to remove the cause. Our Anistics system helps us pinpoint where there is a problem. For example, we have been able to limit the number of excessive medical visits."
Bauccio is upgrading from the Anistics AMS system to OMEGA. The new system will provide fee schedules for WC medical "normal and customary costs"by "CPT Code" that identifies the medical service rendered. SaysBauccio, "we also avoid paying for conflicting medical service situations,such as when we receive a bill for a chiropractor treating back injury with spinal manipulations, and the same bill shows concurrent treatments for shoulder injury. The two can't be done at the same time. The system helps alert us when an injured employee tries to bundle a work-related and non-related treatment into the same bill"
A technology tool for managing Workers' Compensation costs is Quality FIRST, provided by Health Risk Management Inc. in Minneapolis. It is a computerized decision-support system for confirming the diagnosis, appropriate treatment options, and return-to-work capabilities of injured employees. Another system that can be used to confirm whether a particular medical treatment is consistent with contemporary professional standards is provided by the Janus System, developed in Edmonton, Alberta. It is accessed over the Internet's World Wide Web. Dorn Technology Group in Livonia, Michigan, also recently released a Bill Review System module to its RISKMASTER/Win system.
The usefulness of using RMIS technology to control disability costs through managed care is underscored by Michele Eberle. She is Operations Manager of Healthsource Employer Services, Inc. in Concord, New Hampshire. Eberle recently completed a year-long search for an RMIS that would replace in-house disability management system, but retain the database it has built for treatment protocols. She is now utilizing a Medical Cost Containment module developed by Pyramid Systems which employs a "decision tree" method of identifying the most appropriate method of treatment for a given medical condition, and sets "redflags" for guidance of treatment along cost-effective lines.
A major part of claims costs is the expense of litigation. Gregory Fittinghoff, Risk Manager of PepsiCo in Irving, Texas, uses a litigation management and crime management modules recently developed as part of Sedgwick's INFORM system. The litigation management module maintains attorneys' claim notes, maintains diaries, and helps establish authority to settle cases. The module rates the cost/effectiveness of attorneys, based on several factors,including results, dollars spent, efficiency, timeliness, accessibility, and customer service orientation. The system can schedule court appearances and interact with attorneys to develop work plans and budgets for case management. It is part of a Risk Management wide area network developed to provide access to INFORM company-wide.
Benchmarking and tracking of safety performance is the concern of Ed Ratho, Director of Safety for Albertsons in Boise, Idaho. He is using a safety management module developed by Pyramid Systems to track and measure safety performance at the store level. According to Ratho, "all 750 of our locations do the same thing. We are tracking the same problems at each location. This homogeneity allows us to focus not just on accidents, but on accident prevention. We're not looking to compare to others in the industry. With our large number of stores, we have a large enough database to be statistically credible, so we can compare loss experience rates and causative factors among our own locations.
Safety Management has a fast payback at TRI-MET, a regional transportation agency in the Portland, Oregon area. In the State of Oregon, an employer is reimbursed by the State for 50% of an injured employee's salary, if brought backto work on a timely basis, for a restricted duty job while undergoing rehabilitation. TRI-MET's SafeStar safety management system helps in obtaining the reimbursements by completing the necessary forms required by the state. Other safety management software is available from ESIS (SafetyView) and WARE by Work Well Systems.
Providing access to risk management text-based information and knowledge is a recent application of technology to risk management. Both Scott Lange of Microsoft Corporation and Carol Harrington of Sun Microsystems disseminate the information in risk management manuals throughout their organizations' computer networks. Another electronic source of risk management information is provided by Dave Warren, who has published "Practical Risk Management" since1973. He announced in February that an expanded, electronic edition, PRM OnLINE,will be available over the Internet. The publication's electronic content is forming the backbone of an "IntraNet" application, permitting risk managers to provide secured access to comprehensive, electronic risk management and safety manuals to any of their locations or branch offices in the world. All they need is a connection to their organization's wide area network or to the Internet.
The Risknet site and the RiskForum (www.riskforum.com) on the World Wide Web are additional resources being accessed through risk management networks. For example, the Risknet discussion group can be reached with a desktop icon on Aon's internal Lotus Notes network. RMIS Web on the Internet (http://rmisweb.com) is another information resource that can be particularly helpful to risk managers seeking to learn more about Risk Management Information System applications, products, and services.
With all the extended applications of RMIS technology that are being developed, a nagging problem remains. According to Mary Villani, Global Directorof Anistics, "a big issue is the lack of standards for interfacing data between Risk Management Information Systems and systems maintained by insurance carriers and TPAs." According to Villani, "This won't just go away with EDI. One promising effort is the WIN project on insurance industry connectivity and automated submissions. It may develop an electronic commerce standard for the industry. Many carriers have signed up."
Another effort toward nudging the industry toward standardization has been made by Mark Dorn, President of Dorn Technology in Livonia, Michigan. He has designed and distributed a Data Claim File Specification and Tool Set to numerous RMIS vendors and insurers, in the hope that it will serve as a "lowest common denominator" for acceptance of industry standards. Copies of the specification are available from the Dorn Technology Web site, http://rmisweb.com/dorn/.
Allen Monroe, Founder of RiskINFO in Larkspur,California, can be reached by e-mail at email@example.com
or (415) 927-8824.
Copyright 1996 RISK & INSURANCE. 747 Dresher Road, P.O. Box 980,Horsham, PA 19044-0980. Reproduced with permission of David Shadovitz, Editorial Director (215) 784-0910. Portions of the content herein first appeared in RISK & INSURANCE, in April, 1996.