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RMIS Project Aims to Expand Risk Management

by Roberto Ceniceros

A software system developed to help Microsoft Corp. managers gain a broad understanding of their risks soon could help risk managers at other companies learn more about the downsides of their businesses.

Insurance industry titans are betting big on it, they said.

Chief among them is X.L. Insurance Co. Ltd. The Bermuda-based insurer unit of EXEL Ltd. has teamed up with a unit of Microsoft Corp., Microsoft Consulting Services and others to create the system. Their idea is to help risk managers expand their realm from managing just event-oriented risks, such as catastrophes, to handling the risk costs associated with a company's day-to-day processes and decision-making. Such a system also would make managers outside of risk management more knowledgeable about the risks their companies face.

Plans now call for X.L., several major insurance brokers, consultants and possibly other insurers to create an independent company that will oversee the continued development and distribution of the system, sources familiar with the project said.

A name for the company has not been selected, but the first version of the product could be available early in 1999. Its supporters stand to gain from the future products and services that will need to be developed to meet a broader universe of understood risks, the sources said.

Some of those products likely will require the participation of financial institutions other than insurers.

EXEL President and Chief Executive Officer Brian O'Hara announced the initiative in his keynote address last month at the World Captive Forum in Miami (BI, Nov. 30). Aon Corp. also is involved in developing and financing the project.

Project developers already have spent more than a year compiling information gathered from universities, consulting firms, accounting firms and brokers in order to infuse the system with knowledge about business decision-making and associated risk costs.

The project is guided in part by the research finding that bad or wrong operating decisions now cost companies much more than the losses associated with bad events, said Jay Deragon, chairman of The Deragon Group in Nashville, Tenn., and executive director of the Quality Insurance Congress.

Mr. Deragon also is involved in the development of the product.

Supporters say the end product could help define a new role for risk managers and speed the adoption of "holistic'' or "enterprise'' risk management.

The product could move risk managers into a role similar to that of a consultant, advising and coaching other managers within their company about how to use the knowledge the system generates, Mr. Deragon said.

"What we have traditionally viewed as risk and focused on is just the tip of the iceberg,'' he said. "So we are hoping it does accelerate market change.''

Project research has established that 15% of a company's risks are currently being addressed through insurance products or risk transfer mechanisms, Mr. Deragon said. But the remaining 85% of a company's risks are not being dealt with because of a lack of knowledge or understanding of what those risks are, he said. For example, corporations typically do not know the cost of making a wrong decision, such as when the human resources department makes a bad hire.

Researchers involved in the project have identified 180 operational processes that present risk if not executed or managed effectively, Mr. Deragon said.

One of the first challenges will be to get risk managers to adopt the idea.

"We are finding a lot of risk managers are still doing event stuff,'' Mr. Deragon said. "One of the challenges of this is catching the marketplace up to the depth of knowledge it takes to understand this. So there will be a lot of educational support and servicing.''

The first version of the product is already in a testing stage; it has been tailored to address the educational issue. It will provide company decision- makers with educational information on the broad array of risks companies face, the decision-making processes and where help can be found.

A second version is expected to address the risks of specific industries. The developers are currently focusing on 16 industries. And a third version will be company-specific; developers are working with unnamed corporations to develop a model that these corporations can put on their intranet systems.

That was the original idea when Microsoft first began to develop an internal system to help spread risk management information throughout the company. Microsoft's director of risk management, Scott K. Lange, wanted an intranet site that would guide any manager within the organization through quantitative and anecdotal information on the risks associated with the business activities of his or her unit (BI, Dec. 1, 1997).

A prototype site was called "Risk Information System for Knowledge Sharing.'' Part of the idea was to allow unit managers to gain access -- with the click of a mouse -- to everyone within the company who in some form manages risks, whether in the legal department, human resources or in an auditing unit.

It would help risk management become a function of all managers, not just the risk management department.

Today, Microsoft is still looking at applying the program throughout the organization, Mr. Lange said. But the implementation strategy now calls for full development of the product to take place outside of Microsoft before it is brought back in.

"The initial investment hurdle going in is pretty extensive, and trying to draft off of what is created in the commercial venture saves us a ton of time and development costs,'' he said.

Mr. Lange recently announced he will retire from Microsoft to spend more time with his family (BI, Nov. 2). But he said he will invest some of his time in the project's commercial development.

"All I will say is I will be giving my support on a consulting basis initially to help bring this product to the marketplace because I believe in it from the standpoint of bringing better tools to people in my profession,'' Mr. Lange said.

Microsoft Consulting is helping with technical project management. It also is teaching X.L. about certain aspects of the software business, such as what product support services will be necessary.

Brokers and consultants are contributing financial support as well as technical advice about risks.

Aon, over the years, has been developing some of the content information that it will contribute, said Dick Riley, chairman and chief executive officer in Chicago for Aon Risk Services of the Americas. That information includes knowledge about exposure identification and risks that can be addressed either through insurance or through other financial arrangements.

Joining with other corporations will speed the continued development of those products and create a single, consistent product with benchmarks that will benefit all consumers, Mr. Riley said.

"We feel that by coming together with Microsoft, X.L. and some other people, we are going to be able together to do so much more than any of us could have done alone,'' he said.

Aon's Worldwide Resources Consulting Division, which now advises clients on risks that do not involve insurance, will participate in the project by teaching customers how to use the product.

"We are going to be the teacher in the learning process that we are all going to go through on how to use this tool,'' Mr. Riley said.