Over the past two years, the success of "Windows" and Macintosh graphics-based computer environments has brought tremendous change to the way personal computers are used at home and in business. Basic software applications are becoming standardized to a degree that was unheard-of in the years preceding. Anyone proficient in using a particular word processing or spreadsheet package can now tackle an entirely new one, and expect to be able to use it in 15-30 minutes, without ever opening a printed manual.
Incorporating New Technology. These developments have created a clear path to be followed by the developers of Risk Information Systems (RIS). These systems now typically run on personal computers, and provide a wide range of tools and applications that are specific to the needs of Risk Managers. Some of the applications that full-featured Risk Information Systems provide are as follows:
Other software tools, including powerful word processing, spreadsheet, and graphics software, are available through inexpensive, mass-marketed desktop software "suites," such as those offered by Microsoft, Lotus, and Novell. There is no need for Risk Information Systems to duplicate these tools. Rather, the objective of contemporary RIS developers is to provide powerful applications that manipulate data such as insurance claims, policies, and risk exposures that are within the domain of risk management. By integrating these risk management applications with other, relatively inexpensive desktop software that performs more general functions that are not unique to risk management, developers achieve a very powerful, flexible result.
In the last year, according to Mark Dorn, President of Dorn Technology Group, "The Risk Information System market has focused around: (1) Tools integration, and (2) Systems integration." By "tools" integration, he refers to word processing, spreadsheet, and graphics applications that are available in the popular software suites. This is accomplished by designing software that adheres to "OLE" (Object Linking and Embedding) standards. By "systems integration," Mark refers to standardization of database technology through adherence to a common standard known as "ODBC (Open Data Base Connectivity)." Any application that uses a database that adheres to the "ODBC" standard can run interchangeably on any other ODBC-compliant database. This is very important to corporate systems managers, who seek to avoid duplication of effort. They wish to coordinate use of corporate data that needs to be accessed by several functions and departments, such as employee data, information on properties and locations, and vehicle schedules. If such data is maintained on a variety of systems, all of which are ODBC-compliant, it can be accessed by each such system.
Client/Server Architecture. These developments have spurred a major effort on the part of RIS developers to update their systems to Windows and other graphics-user-interface ("GUI") environments. In addition, many systems providers are converting their systems to a "client/server" architecture. Such an architecture can usually afford faster performance that the older "file server" systems. In a file server system, there typically is a central processing computer, serving a network of personal computers or terminals accessing data and programs maintained on the central server. If a large number of users are on the system simultaneously, the central server computer becomes over-taxed, and response time may slow down to an unacceptable level to all the users. By comparison, a client/server architecture places a greater part of the processing task on the individual "client" user computer, speeding up the response time to all users of the system.
New System Functions. Many system developers over the past year have made considerable functional enhancements to their systems. Some systems have added imaging capabilities, so that all documents can be stored electronically, raising the prospect of the "paperless office." Others, such as Anistics, are providing a capability for maintaining a Risk Management Manual online, for easy access from all of your locations. This has the potential of saving a great deal of time that is normally spent answering such questions as what to do when leasing a new vehicle, adding square footage, hiring a contractor, or reporting a claim. Executive report writers, featuring advanced color graphics with "drill-down" capabilities for varying levels of detail, are being added to the leading systems.
Many systems which have been primarily "claims-based" are adding property and exposure tracking, insurance certificate tracking, and other risk management administrative functions. Other new functions are being added within the claims area simply to comply with changes in government regulations. According to Andrew Zahn, Director of Client Services of Claims Management Systems, "it is important that a system incorporate the new "EDI" (electronic data interface) requirements that will become law by the end of the year in Texas and California." Insurance carriers will need to submit to these states Workers' Compensation first reports of injury electronically, instead of by paper.
Investment Hurdles. According to Mark Dorn, these efforts do not come without a considerable development price tag. "Due to a more complete product and a more rigorous set of standards, it takes a lot more money. The cost to develop sophisticated Windows and client/server applications easily can range from $2 to $10 million." The result is likely to be a consolidation of risk management system providers. Companies which are marginally profitable or are owned by parent organizations that are financially-strained are unlikely to make the transition. Some risk managers will face the prospect of owning "orphaned" systems, which, due to a reduced volume of new business by their providers, will experience less ongoing support and development. Or, due to mergers with other systems providers, it may be necessary to convert to the system marketed by the successor company. With this in mind, it is more important than ever to assess the commitment and capability of a prospective system provider to remain at the cutting edge of technology.
Selecting a System. The traditional way of selecting a system begins with identifying your needs. However, full determination of your needs, including flow-charting of your sources and uses of data, and full delineation of the various reports you use and generate for others, can involve a considerable expenditure of your time, and may require the assistance of a systems analyst. With the advent of "packaged software" provided by third party system developers, shortcuts may be available.
A useful methodology is to begin with identifying your most pressing priorities, and the likely users of a system. If you wish, you may expand this with a tentative "wish list" of what you would hope to accomplish with a system. Next, you should outline the principal sources of information you need, and the people who receive information or analysis that you produce. You should identify existing systems that are used to facilitate these activities, such as the providers of loss runs (possibly several), and any word processing, spreadsheet, and graphics packages you may use. Then determine your annual claims volume by line of coverage for each of the past five years (and, for your own purposes, the estimated annual claims cost). You also can identify the names of your principal insurance service providers, such as insurance companies, TPAs, and brokers, by line of coverage. The next step is to identify your principal locations, particularly those that generate a significant volume of Workers' Compensation or Liability claims. Lastly, it is important to identify any existing computer hardware that you and other potential users of a system already have, and any connections that might exist to a local area network or outside information services.
All of this information can be summarized in a printed format, and labeled, "Preliminary Outline of Risk Information System Requirements." Copies should be provided to no fewer than five potential systems providers. Because there are nearly fifty systems that are designed for risk management applications, your first real challenge is to narrow the field. It is helpful to obtain assistance from your organization's systems group, in organizing the information to be provided to systems providers and in evaluating their capabilities. Many companies choose to retain an outside consultant who is knowledgeable about the various risk management systems. The consultant helps to identify a "short list" of systems most likely to fulfill the company's objectives, and then develops a more formal specification of system requirements and a "Request for a Proposal" to be completed by the vendors on the "short list."
Key Selection Criteria. Important criteria for selecting a system provider include:
Cost / Benefit Evaluation. In order to gain corporate approval of the expenditure for your system, you should plan from the outset to document the financial benefits that will be gained through the increased effectiveness and productivity that will result. The benefits then should be compared against the costs, including the ongoing costs of hardware maintenance, supplies, and software support. Typically, the hardware and software package costs are amortized over a number of years, so each year's effective cost may be as little as one-fifth of the acquisition cost.
The rate of return achieved by a relatively small investment in a Risk Information System may be considerable. The package software cost of a single-user full-featured system tends to start at about $25,000 plus the cost of data conversion and customization. The average cost of multi-user systems can range from $75,000 to $150,000, including the cost of data conversion. Expressed as a rate per claim dollar, the purchase cost of Risk Information Systems may amount to as little as $7- $40 per claim. This is relatively insignificant when compared with other claim-related costs, such as legal services.
A number of limited-purpose, Workers' Compensation-only systems have become available in recent years. They provide electronic data interchange in compliance with emerging state regulations, and, in some cases, provide for printing of state first report of injury forms, tracking of claims developments, and limited analysis of trends and patterns. Sometimes, special needs of divisions of larger entities prompt the selection of such special-purpose systems. For instance, Sharon Haynes of Stanford University's Linear Accelerator faced special employee injury reporting requirements of the U.S. Department of Energy. Rather than develop her own system, she selected CompWatch software provided by Benefits Software for printing of California's Form 5020 and had the provider custom-program the Department of Energy forms. These systems may cost as little as $400, but typically range from $1,000 to $3,000. The Frank Gates Company provides EMPLOYER CONNECT, another type of specialized system for under $3,000 that automates the filing of Workers' Compensation
System Implementation. The planning process for implementing a system is as important as the steps in selecting the software. If you wish to load your existing data on open and closed claims, as well as the exposures and insurance policies they may relate to, it is necessary to secure the cooperation of existing and previous insurers and TPAs to provide computer tapes and tape layouts, or electronic information transfer details to the selected system provider. Computer hardware may need to be purchased, or existing hardware upgraded with appropriate memory, disk capacity, network adapter cards, graphics cards, and backup media. If a local area network is to be installed, some wiring may be necessary. Each activity needs to be planned, scheduled, and budgeted.
Training is another important consideration. Typically, the system provider will provide training to your on-site users of the system. If you and your colleagues do not presently use personal computers, it may be helpful to obtain them before the system is installed, and to learn beforehand how to use one of the popular office suites, such as Microsoft Office, Lotus Smart Suite, or Novell Perfect Office.
Comparative System Review. A sampling of the Risk Information Systems currently available from independent providers follows. The focus of this listing is to provide a broad overview of general-purpose Risk Information Systems that are designed primarily to aid corporate risk managers. This summary is not a substitute for undertaking a rigorous system selection process. It does not include systems which are provided by insurance companies, brokers, or other organizations which generally "bundle" a system with other products and services. Many such systems tend to be claims or transaction-based, and may be specific to the insurance product or service provided by the vendor. A number of good systems are available in this category, including such examples as IntelliRisk by AIG, CARMA by Travelers, Risktrac by Liberty Mutual / Helmsman Management Services, and STARS by Johnson & Higgins. Other systems are designed primarily for use by TPAs, group self-insured pools, and insurance agencies. These include Assurance Ware by Progressive Data Solutions, Another category of systems designed for risk management use includes special-purpose systems to assist in planning for disaster recovery (e.g. Strohl Systems), assessing seismic and other natural hazards (Risk Management Solutions), automated loss reserving for Workers' Compensation (e.g. Risk Data Corporation), insurance agency automation (e.g. Agency Management Systems, CISGEM Technologies, Wheatley Insurance Systems, and Insurnet), and actuarial analysis (e.g. EXHIBITMAKER 5 by Coopers & Lybrand). Many of these products may be reviewed at a later date.
For purposes of comparison, the available systems are segregated into three main groupings:
The main distinction between the three groups is that the "Comprehensive Risk Information Systems" incorporate many functions and applications, such as tracking of certificates of insurance, insurance policy management, asset management, and online risk management manuals, all of which are meant primarily to aid in the execution of the overall corporate risk management function. Some of the systems classified as "Claims-Based" include many of the same items of information as data base elements, but primarily as they relate to claims. Most of the focus of the claims-based systems is the processing, tracking, and analysis of claims from a variety of insurance coverage areas, for insured and self-insured companies. The Workers' Compensation systems, having a limited purpose, tend to be less complicated and less expensive than the other systems in this survey.
As software providers continue to re-engineer and enhance their products, these distinctions are gradually becoming blurred. One important service provider, Corporate Systems, is making a major transition from being solely a service bureau to becoming an advanced systems provider. In the words of Terry McNeil, Director of Risk Management of ABM Industries Incorporated, "I've never seen an organization make more changes in a shorter time." When its new line of CS EDGE client/server Windows software products fully emerge from their current beta testing and are released in production versions, Corporate Systems may have an integrated, modular product that can serve a broad segment of the market.
Another development of interest is the increased use of artificial intelligence and "expert" systems. CARE Systems, a relatively new provider in the U.S., has adapted such technology, originally developed by the Australia Post, in a system designed to reduce Workers' Compensation claims costs.
As software providers scramble to update their systems to a graphical environment such as Windows, and client/server architecture, there are significant differences between the various systems in terms of the number of modules that are actually running in the graphical environment. Relatively few of the total number of installed systems currently operate in Windows or in other graphics-based operating systems. This should change quickly, due to impending releases and updates of the major systems. In the meantime, there will be significant functional differences between the available systems.
Within a few years, however, it appears likely that many of the leading "Comprehensive Risk Management Systems" will incorporate relatively similar functional features. Important differences will continue to lie in the particular look and feel of the user interface, and the strength and character of the providers' service and support organizations. The breadth of applications offered by the top several providers is rapidly converging, as is the transition of the systems architecture to the client/server model. For this reason, the summary of system features shown here is not in the format of an exhaustive checklist, as successive releases of updated and enhanced system versions are bringing each of the vendors closer to comparable functionality. Features lacking in any given system lacks today may well be included in the next version about to be released.
What is much less likely to change, however, is the basic human engineering of the product - the look and feel of using the system. For this reason, prudent risk managers seeking to compare systems should perform a hands-on test of each leading software package, in essence giving them a "test drive." If you are thinking of buying a comprehensive risk information system, you also should try to meet the people who will be designated as your support team. As technological designs converge, the system selection process will increasingly rely on human factors.
Copyright ( 1995 RISK & INSURANCE. 747 Dresher Road, P.O. Box 980, Horsham, PA 19044-0980 Reproduced with permission of David Shadovitz, Editorial Director (215) 784-0910. The content herein is a portion of a special report appearing in RISK & INSURANCE, July, 1995.