Business Insurance RMIS Article

"Few pluses realized in developing homegrown RMIS setups"

December 13, 2004

by Michael Bradford

Technological improvements and a healthy supply of service providers have rendered the homegrown risk management information system nearly obsolete.

There is little reason, sources say, for a risk manager to take the time and spend the money to build a risk management system when there are plenty of customizable systems and off-the-shelf software packages that are quicker and easier to put in place.

Fifteen to 20 years ago, large companies would have been more likely to take on the task of building systems, said Bob Morrell, chief technology officer with Aon RiskLabs in Marietta, Ga. "But it's very rare now," he noted.

Back then, RMIS vendors were so scarce that many large companies either went without systems or built them themselves, said Mr. Morrell.

That's no longer the case.

"We're not seeing risk managers trying to do it," said Mark Charron, principal with Deloitte Consulting in Hartford, Conn. But, he added, "there may still be some legacy home-built systems" that risk managers continue to use.

Mr. Morrell said he sometimes finds risk managers with "systems built 10 or 15 years ago that they are still clinging to," but when his company encounters a risk manager considering whether to build or buy, "we never see them build."

Information technology departments were designing software a decade ago, Mr. Morrell acknowledged. But with reduced head counts at many organizations, "corporations aren't building software anymore; they're buying it," he said.

RadioShack Corp. was one of the companies that recently ditched a homegrown system for a new RMIS from RiskLabs, said Jaime Caballero, manager of risk management at the Fort Worth, Texas-based electronics retailer. The company never considered building its own RMIS a second time, he said.

The corporate mindset of "let's build it" began losing steam several years ago, Mr. Caballero said, and RadioShack's information systems staff was no longer willing to support the legacy RMIS.

"RadioShack was notorious for writing its own programs," said Mr. Caballero, and the RMIS the company used for 15 years had been "built, written and rewritten" until its usefulness reached an end.

The new system actually replaces three of the older ones that handled damage, loss and product liability claims at RadioShack outlets, he said.

Big Lots Stores Inc. briefly considered building a system to replace an aging system built in-house but was deterred by the demands of such a task.

The company didn't have the experience to do it, said Allen Wingfield, the Columbus, Ohio-based retailer's risk manager. Designing a system that would comply with workers compensation regulations in the 46 states in which Big Lots operated at the time and would handle tasks such as medical bill review were soon seen as overwhelming.

Big Lots turned to an outside vendor in 2003 to build its system.

There are exceptions to the general trend of using vendor systems, although they are few. Wal-Mart Stores Inc. confirmed that it recently rolled out a RMIS it put together but would not provide details on the system or the process of building it.

Vendors point out that companies the size of Wal-Mart are the only ones that have the manpower and money to successfully put together their own RMIS.

And even before the growth of vendor services and technologies, it was not a common approach.

Some companies did take on the job of building their systems, noted Matthew L. Carden, vp-risk management information systems for St. Paul Travelers Cos. Inc. in Hartford, Conn. "But even before the advent of all the new applications, it was the exception and not the rule," he said.

Even if a risk manager were to decide his or her needs are so specialized as to require a homegrown system, getting it done would be a big chore, sources agree.

Information systems staffs at most companies typically are "committed to whatever their core business is," Mr. Carden noted, and a risk management department clamoring for a RMIS to be built would probably have trouble getting the attention of the technology staffers who would do most of the work.

Mr. Morrell agreed that a RMIS would likely receive an "extremely low priority," because it generally is "part of a small department in a very large organization."

The price of building a system is daunting, Mr. Carden pointed out. "It's a big cost." When risk managers look to outside vendors to provide the systems, "they make the decision that they can buy it cheaper," he said.

The ability to exchange data over the Internet also has made the decision to buy a system easier, according to Mr. Morrell. Users can easily connect to Web-based systems to transmit risk management information, he said. "Ten years ago that would have been a problem, but now the Web is a common thing."

Some risk management functions could be taken care of on simple homegrown systems, sources say, but those would not be able to handle complex RMIS functions.

It is possible for a company to build a straightforward system to manage certificates of insurance or collect some claims data, said Robert G. Petrie III, Chicago-based chief executive officer of CS STARS, Marsh Inc.'s RMIS unit. "But if what they want is a RMIS or claims management system, odds are that they will be less than successful" in building it, Mr. Petrie said.

It is more likely that a company that can't find what it needs from a single vendor will link products from various suppliers, vendors say. Or an in-house system such as those that handle asset management or human resources functions could be integrated with a vendor's RMIS.

"A lot of companies are linking their HR systems to a claim reporting system," allowing them to complete tasks such as filing initial notices of loss to an insurer or other service provider, Mr. Carden said. Another use would be to link an in-house system with an insurer's system to transmit files related to property coverages.

In both cases, Mr. Carden noted, the in-house systems likely would be provided by vendors rather than homegrown.

A company considering the undertaking "would have to question what they are trying to accomplish by building their own," said Mr. Charron. Independent vendors offer customizable products that allow enough configurations to handle individual RMIS needs, he said.

According to Mr. Charron, "customization is pretty common," allowing risk managers to "tailor it to your specific organization."

Mr. Charron noted that brokers that provide systems have begun to make them more customizable. "They've added a lot," he said, to make their systems adaptable to risk managers' needs.

And some insurers use their system offerings as a way to improve the value of their relationships with policyholders, Mr. Charron said. "Some are strategically placing their systems so that (the insurers) are not viewed just as a provider of coverage but as someone who is bringing an additional service" to the insurance buyer, he said.