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It seems hard to believe that risk management information technology has been on the scene for over 25 years. Equally difficult to absorb is how much that technology has advanced since those early days when it was limited to loss runs that insurers produced from their mainframe computers as a service to some of their larger clients. The author has been tracking these developments for over 15 of those past 25 years, conducting biennial surveys to determine the latest in risk management information technology. Here, he discusses the results of his most recent survey of the major RMIS vendors, providing us with a profile of each vendor and a comparative analysis of the systems they offer.

The last comprehensive review of commercial risk management information systems conducted by this writer was published in late 1991, nearly four years ago. Much has happened since that time. The explosion of technology has truly taken hold in the RMIS industry, and vendors are actively pursuing avenues of bringing that enhanced expertise to the marketplace.

This article discusses these and related issues as it provides a strategic overview of the industry's major vendors. Space limitations, unfortunately, do not allow a comprehensive review of the some 47-48 vendors as listed in the most recent annual RMIS directory (August 1, 1994) published by Business Insurance. Rather, the objective here is to identify and discuss the major systems, defined in terms of functionality, price, service, technology and vendor stability.

In addition, the discussion here is intended in part to provide a snapshot view of the direction, innovation and future orientation of the industry. But, for the benefit of those readers who may not be familiar with this writer's biennial reviews previously published elsewhere, let us first lend an historical perspective to the current state of the RMIS market.

A Bit of Background

Initially, in the late 1960s and early 1970s, risk management information technology was limited to systems utilizing mainframe computers that allowed insurers to print out summaries of claim losses as a courtesy to their larger policyholders. These primitive loss runs were often months behind real time, contained numerous errors, and were difficult to read. Moreover, they contained little useful information, the only exception being the total incurred loss figures for any particular claim.

Nevertheless, these computer print-out loss runs were the precursor of client reports that risk managers, or "insurance managers" as they were called then, were beginning to request with greater frequency. As their superiors demanded more and more financial information about the nature of the losses driving their premium costs, obtaining such information was vital.

As the decade of the seventies wore on, insurers' mainframe systems generated new reports: locations where the losses occurred; better summaries of claim information; some primitive cost allocations. Other sources of such reports also became available as brokers (e.g., Alexander & Alexander's Anistics) and other organizations (e.g., Corporate Systems of Amarillo, Texas) began to develop these systems.

Still, as more and more companies were providing these services, mainframes ruled the era in a time-share fashion. Vendors would store their insured or self-insured clients' data on their systems and make specialized reports available to them on a line-charge and claim-storage basis.

By the 1980s, the PC (personal computer) revolution was in full force in the business world and began its inexorable move into the RMIS arena. PCs gave risk and insurance managers greater flexibility to analyze and report on the data that was produced. Processing vast quantities of exposure data, however, still required the raw computer speed and power of a mainframe system.

Before the decade was out, stand-alone systems were beginning to dominate vendor-controlled timeshare systems. PCs became more powerful and easier to use with the advent of such operational software products as Microsoft Windows.

What's more, these new systems were not focused solely on claims and loss information. They handled other functions such as management of properties, vehicles and insurance policy registers, tracking and issuance of certificates of insurance, and identification of exposures, as well as a host of spreadsheet analyses from loss development to cost-of-risk allocation to safety exposure allocations.

Today, mainframe systems are becoming obsolete. Networked PCs, called LANS (for Local Area Networks) and WANS (for Wide Area Networks) dominate the landscape. They perform a wide variety of risk management and insurance functions (risk control and risk financing) with impressive technical capabilities, such as electronic data interchange, expert systems in predicting case reserves, and detailed policy registers using optical character recognition scanning technology.

Most importantly, these systems are easier to use for the computer novice and can integrate with other systems' databases. This is especially useful for the risk manager needing access to both financial and human resource databases.

Current and Future Trends

Over the past few years, since this reviewer's last report, workers compensation-related modules—from medical and case management to HMO/PPO tracking to basic claims and financing analysis—have continued to strengthen their dominance of the RMIS market. Also during this time, significant shifts in strategic direction involving major RMIS vendors have occurred. Let us consider some of those changes here.

Market Is Stabilizing

The RMIS market was heading into the initial stages of "product" maturity in the early 1990s. The costs of market entry were continually rising as still costly technology was responsible for an increasing part of the total package price. Moreover, vendors were jockeying for position with features to differentiate their products from the others, such as functionality improvements in the software, ease-of-use features, or the beginnings of integration with other key corporate systems, such as finance and human resources.

That trend has continued to this day, stabilizing the market with few significant entries or departures of vendors offering comprehensive RMIS capabilities. Of those few, Marathon Systems in San Francisco was the most notable departure. Among important recent entries is the Big 6 accounting firm, Price Waterhouse, which has developed a comprehensive RMIS to serve larger clientele such as insurers or state funds.

The most significant growth still tends to be in specialty areas, adding a specific or unique expertise, from automated loss reserving (i.e., Risk Data Corporation) and actuarial projections to experience modification calculation and managed care/case management.

Increasingly, there are also signs that the industry's sleeping giants, insurers, are awakening. Several are undertaking re-engineering studies to either refit or redesign their slow, difficult-to-use, archaic, cobal-coded mainframe dinosaurs. Some are considering outsourcing their RMIS activities to certain of the vendors reviewed here.

Either way, insurers such as American International Group have recognized the importance of providing efficient management of information in the way the client expects it. AIG has designed a system (IntelliRisk) which is not only well-designed technically, but is client-responsive, improving on the old-fashioned response pattern typical of insurers in the past.

With enormous resources (most importantly, the data) at their disposal, insurers have the capacity of developing very sophisticated and useful information systems to meet their clients' diverse needs. And offering such services will undoubtedly help curtail the erosion of their client base; indeed, it may draw many of those who have already left back to the fold.

Continued Technological Advances

A recurrent theme from past reviews is again evident here: constant technological innovations. This time, however, there is a refreshing emphasis on the implementation of logical technology, not merely the "bells and whistles" frills which had been a hallmark of RMIS vendors in the late 1980s. Essentially, what we have today is a refinement of the technologies that had been somewhat new at the end of the last decade.

Developments in the area of imaging, or "document management," provide us with a good example. While optical character recognition (OCR)—a technique by which the scanner actually "reads" data into the database—is still is too expensive and error-ridden for full-scale implementation, its technology continues to improve. Full scanning and data retrieval systems are quite sophisticated and useful for risk managers desiring to reduce their paper flow and policy storage headaches.

Advances in electronic data interchange (EDI) technology can also be beneficial to risk managers. Errors occur when a system calls for duplicate efforts to input data on claims, exposures or other aspects of a risk and insurance management program. Utilizing EDI eliminates the middle step because it instantly transmits the raw input data to the ultimate recipient, whether it is the risk management department receiving raw claims material from its third party administrator or the Department of Labor receiving a first report of workers compensation injury.

Another area of continued improvement involves expert systems and neural networks. Vendors such as CARE Systems, Inc. have developed impressive expert systems which estimate indemnity reserves for workers compensation or make inferences on the level of medical treatment necessary for specific claims.

Neural networks are a type of expert system which essentially "learns" as new data on a claim or underwriting submission is presented. Shifts in strategy are made with new information. Applications of this technology to the claims, underwriting/risk assessment, risk financing and loss control areas are certain in the near future.

Finally, and certainly not the least important, specific, higher-level report-writer applications programs, such as Business Objects or PowerBuilder, have come into increased usage. Such programs give the users an incredible ability to manipulate their data and generate highly analytical reports without needing a programmer nearby to navigate the software.

Workers Compensation and Employee Benefits Systems Still Have Top Billing

Despite the fact that several states have passed impressive reforms and some (such as Massachusetts) are seeing rate rollbacks, workers compensation continues to be the key claims exposure area of greatest interest and concern to risk managers and RMIS vendors. Vendors have developed multiple modules and submodules for functional analysis of workers compensation programs, from basic claims management to medical management and analysis of patterns of treatment to risk financing and analysis of OSHA requirements.

Although the merger of workers compensation and group health and disability programs has not yet been formally consummated, the so-called "24-hour" coverage module is being actively developed by such vendors as Corporate Systems and CARE Systems, Inc.

Emphasis Is on Functionality

Users are more sophisticated now and expect much more of their systems and vendors. A system's functionality, or ability to perform important tasks in an efficient, accurate and timely manner, is what distinguishes the best vendors.

For example, many clients desire access to complete information from their claim organizations' files, instead of merely summary data. Some want point-in-time transactional data instead of summary information. Others want the "big picture" and not just the details of a claim. These are only a few examples of the many kinds of functionality risk managers expect from their vendors today.

A Push Toward Standard Architecture

In the past, mainframe/timeshare systems all generally ran on IBM computers with similar software (cobol). The PC revolution changed all that as many platforms, operating systems, applications, "middleware," and other peripherals appeared, confusing just about everybody. The result was—and still is—a hodgepodge of PC, PC-LAN, minicomputer and mainframe products, all using different hardware, operating software and applications software that do not communicate very well with each other.

Moreover, software of a proprietary nature—that is, unique to the company that designed it—can cause problems for the client should the vendor go out of business. The risk manager's information systems department is also affected by such problems as those personnel are typically charged with the responsibility of supporting outside commercial packages.

Today, there is a major push in the industry toward standardization. But this time, it is software, not hardware, that will define this standardization. Microsoft has replaced IBM as the standard bearer, and vendors are striving to provide their applications in Windows, Windows NT, Windows 95 and UNIX operating software.

The preferred platform is an architecture known as "Client/Server," which, according to many software industry pundits, is the standard upon which leading-edge software will be judged. C/S is a strategic information technology architecture that allows for the effective and seamless convergence of sophisticated applications software, such as relational databases (a foundation of RMIS claims and exposure systems), networks, graphical interfaces and application development tools.

In essence, C/S architecture unbundles each application and integrates the technologies among the client, network and server. Its standard software protocol enables many people on the same system to share different applications and data without costly bridge programs.

Activities are separated (invisible to the end user) into two distinct areas, each of which operates on a separate computer. The computers are linked and communicate through a local area network. The "client" portion of the software operates on the individual user's PC and deals with the "server" computer which acts as a sophisticated traffic cop/dispatcher. The server dispatches information upon request from each of its clients.

Most of the vendors that are reviewed here either have or will have, in the next 12 months, a workable client/server platform as well as a Windows product for stand-alone or LAN sites.

More Travel on the Information Superhighway

Another development of late is reflected in the growing interest in and use of groupware, bulletin boards, the Internet and the World Wide Web. Risk managers have long been information junkies but had been stymied at their occasional inability to get information quickly. They either had to wait for their monthly loss runs or request special reports from their brokers. That is no longer the case today. Risk managers can link up their RMIS with brokers, insurers, TPAs, etc., using popular E-Mail programs such as ccMail or the more comprehensive LotusNotes groupware product.

Increasingly, more and more dial-in electronic bulletin boards, such as RiskNet from the University of Texas, RIMSNET and the standard big boards, such as America OnLine, CompuServe, Prodigy and Delphi, offer the risk manager seemingly limitless opportunities to obtain information. Finally, the lure of the Internet and World Wide Web offer an inexpensive and direct way to send and receive vital information, and to discuss specifics with overseas colleagues or division managers.

Global RMIS

As the world becomes smaller from an information management perspective and European and as Far Eastern risk managers develop more sophisticated techniques, the global demand for risk management information technology has increased. Several international vendors have appeared on the scene over the last several years. These include A/S Quasar Consultants, EffiSoft, Figtree Systems Ltd., and Frasin and Stewart Computer Services, Ltd.

Domestic RMIS players such as Anistics, RSG and Corporate Systems have had an interest and expertise in global systems since many of their clients are multinational. System design, therefore, starts with the American perspective.

On the other hand, the foreign RMIS vendor tends to be less interested in claims-driven systems as workers compensation is less of an exposure issue in many countries. Rather, they are driven more by insurance administration functions with property and other asset tracking modules. Nevertheless, global RMIS will continue to gain in importance in the years ahead as nations and firms become increasingly interdependent.

The Effects of Re-engineering Trends

Last, but not least, in this list of current and future trends is the move by RMIS vendors and clients toward re-engineering. Clients have been downsizing and "reinventing" their organizations over the last decade, and management structure has struggled to keep up. Consultants specializing in benchmarking, best practices, change management and re-engineering have done quite well in these turbulent times as organizations strive to improve their bottom line by reducing unnecessary expenses.

Risk managers, themselves victims of downsizing, have had to rely increasingly on their brokers, consultants and risk management information systems to pick up the slack. Now, more than ever, they are dependent on a good RMIS.

This has had a domino effect on the vendors. As clients demand better, more efficient, and more comprehensive and technologically advanced systems, those vendors that have been around for a while see in their mirrors old technology, software, hardware and support personnel. They need some re-engineering themselves.

That is just what is happening. Two old bastions of the dying timeshare era—Corporate Systems and Risk Sciences Group—have undertaken the necessary (and expensive) path of moving from the old mainframe architecture to a more open, client/server architecture. Insurers such as AIG have already done so. Others are soon to follow. Those vendors who don't will not survive this new phase of the Information Management Age.

What To Look for in an RMIS

A risk management information system is the most important tool available to today's insurance and risk manager. Through this device, a risk manager can become an information clearinghouse for his or her organization. Vital exposures to fortuitous risks of loss such as those involving automobile liability and physical damage and other property and liability claims can be monitored and managed in a real-time environment.

Policy, certificate and contract data can be effectively stored and analyzed. Financing options ranging from full insurance to higher retentions or deductibles to pure self-insurance with stop loss protection can be fully and adequately evaluated by these systems. Costs can be fairly and definitively allocated among departments, subsidiaries and strategic business units. And, as corporate staffs feel the pressure of layoffs, a well-designed RMIS can replace some of the more mundane functions of the risk management department and enhance its operations.

But because these systems vary in scope, function, size and make, the risk manager, as a prospective investor, must step back a bit to think through the process before buying or building. Many sad tales of inappropriate system purchases abound because the buyers failed to do their homework thoroughly. Not all vendors or RMIS are created alike. And, because of the initial expense and time involved in installing and properly utilizing the system, a wrong investment can be disastrous.

So, before making this important investment, there are several steps that you should consider taking first.

Assess your needs: This is the first and most critical step. Determine just what it is you want this system to do for you.

n Do you want a system to completely administer an internal claims unit, or do you intend to use it simply to track some locations and policies?

n What is the scope of this system? Which department(s) are involved? What data is needed?

n What external vendors are necessary (third party administrators, insurers, brokers, etc.)?

n What are your most serious problems? Can you prioritize them? Who in your organization is systems-literate and can help you?

n What is a realistic budget?

If you can answer the majority of these questions to your satisfaction, you are well on your way to developing a good system.

Survey pre-qualified vendors: According to the Business Insurance annual RMIS survey, there are some 47-48 vendors providing these systems. While most are claims-oriented, many have additional or niche-oriented functions such as insurance management, financial analysis, exposure and safety tracking and executive management reporting. Some are quite specific; others are comprehensive.

The tables that follow provide examples of some of the more popular systems, classified by major function in relation to system configuration (or platform/size of computer). Although all are US-based firms, two—Anistics and Risk Sciences Group—have operations in the UK.

Consider other options: The commercial option is probably the most popular choice when deciding upon an RMIS. However, some considerations should be given to the alternatives: (1) maintaining the status quo and doing nothing at all; (2) building your own custom system; or (3) utilizing a hybrid approach that combines commercial and customized features.

If the application is unique and small, and you have access to good programmers, the customization/build-your-own option is a reasonable approach. If automation would generate relatively few advantages for you—a yellow notepad and calculator perhaps being more efficient—then doing nothing is probably best. You cannot make an intelligent decision until you conduct a careful needs assessment to answer the questions outlined above.

Develop or update specifications: Second to a needs assessment, the development of accurate and detailed user specifications is the most important step in obtaining a well-designed and responsive RMIS. It provides a blueprint for proposals from the vendors bidding on your business. It also serves as a measuring rod to help settle any arguments that may arise with your selected vendor about what was promised, for how much, and when it would be installed.

Typically, you should engage a systems professional to assist you with this step. The specifications should include a comprehensive, detailed description of the type of service you and your staff, as well as personnel at remote locations, expect.

Some Typical Problems

Unfortunately, computer systems are inevitably accompanied by a few new problems that the risk manager must deal with. Here is a list of common problems:

• data impurity
• lack of service
• software incompatibility
• mapping errors (when changing vendors)
• poor system documentation
• obsolescence
• bugs
• hardware incompatibility
• system inflexibility
• proprietary problems (only the creator knows how the system is put together)

And here are some remedies for those problems:

• solid assessment of needs
• comprehensive and clear specifications
• good contract negotiation
• reference checks, including on-site inspection
• financial check (especially important if relying solely on the vendor for support)
• source code (the actual programming code for the system, especially useful should the vendor go out of business)
• standard software configuration, such as DOS or Windows
• internal access to systems expert
• solid vendor account team

Survey of Vendors

A note on methodology: The methodology employed to conduct this review was simple. Comprehensive survey forms were forwarded to seventeen vendors requesting system, feature and demographic information. To participate fully in the review, the vendors were to return the completed questionnaire before a specified deadline. They were also asked for names of clients that could be contacted to determine their objective views on the vendors' systems.

Specific note is made within the appropriate review if a vendor has failed to respond to either all or part of the survey. For example, Risk Data Corporation, Johnson & Higgins, and Helmsman (Liberty Mutual) did not return a proffered questionnaire.

The focus here is on "independent" vendors that offer their systems on an unbundled basis. Although several of the vendors considered in this study are owned by major insurer or broker parents, the fundamental objective of the subsidiary in each case is to offer its system on an unbundled basis. (An article in a future issue of this publication will review insurer, broker- and TPA-based systems.)

Each vendor/system is evaluated in a relative context: There are no "perfect" system solutions, much less systems which are "off-the-shelf." Rather, each is compared against the other as measured by critical performance descriptors: functionality; architecture/ configuration; technology; vendor service (including user feedback); vendor stability; and cost (for the system as well as the ancillary services offered).

To this, another bit of advice is offered the reader: Do not use this survey as your sole determinant for selecting a vendor and system. Every organization's needs vary. Selecting an off-the-shelf solution via a review of this nature without a sound needs assessment and systems evaluation is reckless at best.

Finally, my thanks to Glenn Trutner at Marsh & McLennan, who provided some good advice on revising the format used for previous reviews.