Copyright © 2002 Business Insurance

"Computer System Changes Bring Hassles, Big Costs;  Switching Insurers Often Means New Systems" December 2, 2002

by JOANNE WOJCIK

In the current hard market, many risk managers changing insurers also face a move to new claims administration and risk management information systems, and the transition is often is both involved and expensive.

Some risk managers feel they must, in essence, pay a ransom to obtain their past claims information from insurers that hold the data hostage by writing it in a computer language that only their systems can understand. Because of a lack of standardization, the data must be translated before it can be moved to another insurer's system or to an independent RMIS.

To avoid these hassles should switching insurers become necessary-a prospect that is increasingly likely as the once-touted long-term relationships between buyers and insurers disappear with the market's constriction-many risk managers are turning to independent RMIS systems. They also are doing so to gain more control over their exposure information and claims handling as their self-insured retentions grow.

"In this marketplace, I think there's more involuntary movement from one carrier to another, and to the degree that that's done, obviously, these claims management systems are going to be different,'' said Jeff Pettegrew, vp of risk management and insurance at Westaff Inc., a temporary staffing firm based in Walnut Creek, Calif.

But transferring claims data from a prior insurer's system to a new one generally adds time and expense to the transition process.

"They don't like losing that business. And once that business is gone, then they're faced with the cost associated with providing that data on a monthly feed,'' explained Brian Mack, vp of sales and marketing at Valley Oak Systems Inc., an independent RMIS vendor in Alamo, Calif.

To recover those costs, "I've seen people charge anywhere from reasonable amounts to cut a tape to very unreasonable amounts to basically do a simple extraction function that should not be that difficult,'' said David Duden, a director of Deloitte & Touche L.L.P. in Hartford, Conn. "And, obviously, the risk manager has to pay for the load routine wherever the data is going to. Nothing's free anymore.''

When Cindy LeRoy, U.S. firm risk manager at PricewaterhouseCoopers L.L.P., attempted to obtain old claims information from two previous workers compensation insurers and move it to PwC's current insurer, she found out just how involved-and costly-such a transaction could be.

Her goal was to consolidate the claims history from Price Waterhouse's workers comp insurer before the accounting firm merged with Coopers & Lybrand in 1998, with that of Cooper & Lybrand's premerger comp insurer, Ms. LeRoy explained.

"We really wanted it in one place. We didn't want to have to keep going back from the old carrier to the new carrier, and the old carrier usually is not really cooperative. And then they give you very minimal access. You can't read the adjuster's notes; it's basically just what the claim is,'' she said.

But when she approached the two firms' prior insurers, "they said, `We're not going to give you any information unless we charge you something,''' she recounted. "I said, `But we've got open claims. How are we going to manage them?' They said, `You have to pay a fee just to get paper loss runs.'''

Then, after finding out just how much it would cost to obtain the claims information, PwC opted to get feeds twice a year rather than on a monthly basis, she said.

Another obstacle many risk managers face when transferring claims data is persuading the new insurer to accept all of the prior claims history.

"Most carriers and TPAs say they don't want anything to do with the prior loss history,'' said Kenneth C. Ancona, national sales and marketing manager at Risk Science Group, an RMIS vendor in Schaumburg, Ill., that is owned by Crawford & Co. "They say, `That's your thing. You keep it.' Or, if they do (accept it), it costs them an arm and a leg to convert it into the active TPA or carrier. That's where all the pain comes in,'' he said.

Data conversion is a significant issue, because of differences in the ways insurers and TPAs format data. In fact, some even use more than one language.

"We convert data from, literally, 900 sources a month from more than 200 different providers. Travelers and Crawford probably send us 30 or 40 sources a month. Every single one of those is in a different format,'' said Bob Petrie, managing director in charge of Marsh Risk Technology in Chicago.

In an attempt to address the issue, the Risk & Insurance Management Society Inc. approached ACORD-the Assn. of Cooperative Operations Research & Development-last November to persuade insurers and TPAs to adopt the use of extensible markup language, or XML, so that all carrier information is transmitted in the same format (BI, Dec. 3, 2001).

But the movement is taking off slowly, and so far, only a handful of insurers have adopted XML, according to Beth Grossman, assistant vp of industry relations at ACORD in Pearl River, N.Y.

"When the risk managers through RIMS got involved with ACORD, the main goal was portability of data,'' she said. "The biggest issue was, on the claims side, to be able to move from one claims administrator to another or to pull it in-house, or to decide to go from managing it in-house to having a TPA do it,'' Ms. Grossman said.

The two organizations decided to concentrate initially on creating standards at the beginning of the insurance transaction, because "at the beginning was where the biggest bottleneck was,'' she explained. To address that problem, ACORD created an "exposure template.'' The template, which uses a Microsoft Excel spreadsheet, allows users to enter in a variety of detailed information about exposures.

That standardized approach to detailing exposures is taking off in London and among reinsurers, which have been seeking more and better exposure information since the Sept. 11, 2001, terrorist attacks, according to Ms. Grossman.

But insurers aren't the only obstacle to adoption of a universal language for RMIS, industry experts say. Risk managers themselves have developed their own unique methods for reporting that insurers, TPAs and RMIS vendors implement for them.

"There's still going to be a degree of customization,'' said Mr. Duden of Deloitte & Touche. "Take, for example, the definition of `total incurred.' You look at five different systems, and each of them will define `total incurred' differently. Do they consider recoveries? Do they consider legal expenses? Everybody has a slightly different definition for some of these common terms and words that we use, and data standards are not going to solve all of that.''

Notwithstanding the standards debate, interest in independent RMIS systems seems to be growing as deductibles and self-insured retentions rise.

"The more self-insurance, the more demand for RMIS products,'' said Marsh's Mr. Petrie, adding that "we're seeing a huge spike in demand by customers wanting our services.'' Marsh offers the STARS system.

Sheryl A. Pixler, risk manager at StorageTek, a data storage company based in Louisville, Colo., opted for an independent RMIS system to better monitor how the company's insurer, St. Paul Cos. Inc., was handling workers compensation claims under a large-deductible program.

"They administer our claims, but we are extremely active in participating in the settlement of those claims,'' she said.

She also wanted a system that could produce reports to enable her to spot trends, Ms. Pixler added.

"I'd rather go the independent route. I can call the shots then,'' said Connie Burkhard, StorageTek's loss control specialist.

"The control thing is huge. I want to be able to get to my claims when I want to. I want to be able to run reports when I want to,'' she said.

"Right now, we can pretty much slice and dice any way we really want and need to, and you don't always have that ability with those other systems,'' Ms. Pixler said.

Many risk managers opt for an independent RMIS because these systems generally are more robust than insurer and TPA systems.

In many cases, "risk managers think the claims system is going to be serving all sorts of risk management needs, and it doesn't. That's not really what it's built for,'' said Neil Harrison, director of risk information consulting at Aon Corp. in New York.

As a result, "We see a lot of disappointment in the market,'' Mr. Harrison said.

"The claims system is very strong in transactional claims information, but doesn't do a great job in recording exposure data, providing links to other parts of the client's business, and so on,'' he explained.

Furthermore, by having an independent RMIS, "if you would change carriers, you would have your history in-house, and you can go forward with the new carrier,'' pointed out Deloitte & Touche's Mr. Duden, leaving no question about who "owns'' the data.

However, some proprietary carrier systems are becoming more sophisticated.

After looking at an independent RMIS, PwC decided to go with Chubb's proprietary RMIS Dimensions because it provided more current information and better access to adjuster's notes, said Mary Beth Pedone, PwC's manager of claims and loss control.

"If you use a carrier system, it's much more real-time,'' she said.

© Copyright Business Insurance 2002