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Risk management software, risk pools and pool members: Thoughts on a recent presentation to the National League of Cities

risk_pools_and_the_technology_raceOn October 23, I joined Mike Theut of Aon eSolutions in Portland, Ore., to give a presentation at the National League of Cities Risk Information Sharing Consortium. The conference organizers asked us to speak to some 200 attendees at the general luncheon session on the subject of “Trends in Technology & Emerging Solutions for Risk Pools.”

After the conference, Mike suggested I talk to the Aon eSolutions Impact Blog to share my thoughts about the session and why, we think, it was of interest to attendees, who were primarily staff of state-level municipalities (i.e., the members of the risk pools) and the executive staff of the risk pools themselves. Guest-Blogger-badge

Mike has blogged several times already here, but he thought that I could bring a unique perspective given my role as managing director of the Risk Pooling practice for Aon Risk Solutions. Mike, his Aon eSolutions colleagues and I work together often, but we thought it could be useful for me, a veteran of the risk pools industry, to bring the holistic risk pools view together with the risk-technology perspective. 

I’ll use a question-and-answer format to distill my thoughts into a blog post that will, I hope, be of interest to risk pool members and risk pool administrators alike. 

Question: Why is risk technology an important topic for pool members and pool administrators?

Answer: Just as with most private-sector businesses today, pool members and administrators are becoming ever more sophisticated in how they manage their risk, exposures and insurance. They recognize that in order to optimize their total cost of risk, they need to improve on how they: 

  • Collect their data
  • Analyze their data 
  • Interact with various data sources 
  • Warehouse their data 
  • Access their data, and 
  • Use multiple touch points to compare and analyze their data in order to find where they can improve their Total Cost of Risk (TCOR). 

In Portland, Mike and I discussed how pools and their members can then take that sophisticated approach to data and put it to work. When members and administrators have all of the information they need in one spot, ready to be mined, they can, for example, match personnel issues to claim issues to exposure issues and then tie it all back to location data.  Trends that they could only suspect were occurring can be validated, and then acted on. 

Question: Are there any overall forces driving pools and their members to get more sophisticated in how they approach their risk and insurance programs? 

Answer: In my conversations with pools, I frequently make the point that when they get large enough, they actually begin to look like small Fortune 500 companies to the insurance markets. Some of these pools have $10 billion, $20 billion, even $50 billion in property exposure, so they’re no longer just an aggregated group of municipalities who are gathering together for buying power. There’s no question that they have market leverage now. 

It can be useful for a risk pool to think of itself as a small insurance company of sorts. When a pool reaches critical mass, it definitely has a need to look very carefully at its data and begin to analyze it and use risk technology for what it’s best at, which is to reduce the  pool’s TCOR.

Question: What are the most important things that risk pool members and administrators should keep in mind when thinking about how to apply risk technology to their needs? 

Answer: First and foremost, pools need to focus on what I call the cross-referencing capability of risk management software. This is something we discussed at length in Portland, and it’s very important. 

When risk pools implement risk management information systems and begin warehousing their data, they need to know where to look to get the strongest return on investment. Data associated with litigation management, law enforcement cases and managing evidence of insurance are just three examples. 

  • Litigation management: Risk technology is very valuable in monitoring the performance of the defense counsel, especially in terms of how long files remain open. We have found a very clear correlation between how long cases are open and not only the defense costs, but also in terms of loss payments.  There is a large ROI associated with being able to benchmark the performance of defense firms.

  • Cases involving law enforcement: In one type of example, in the event of an officer-involved shooting, a tasering or use of a baton, risk technology can capture the root cause. In such cases, it’s important that the municipality and the pool administrators understand not just what occurred but also why the event happened.

    Aggressively mining the data can be used to identify if the person or persons involved in the incident were mentally ill, involved in a crime or using illicit drugs. Matching the root cause with the officer’s responses on an “escalation of force” basis (baton vs. taser vs. firearm) can be used to analyze all of the dynamics associated with these catastrophic law enforcement claims. 

    When used in this way, risk technology helps not only with open cases, but also with loss-prevention efforts by helping to develop the best responses possible to the various root causes. 

  • Managing and validating evidence of insurance: As any pool member or administrator can attest, providing evidence of insurance to pool members and tracking the compliance of third-party providers working with pool members is often a monumental, laborious effort. Risk technology improves the efficiency of managing these processes as well as the effectiveness of validating evidence of insurance. Ultimately, having strong risk transfer protocols in effect is going to reduce TCOR.

Craig_Bowlus

 

Craig Bowlus is managing director of the Aon Risk Solutions Risk Pooling practice. Email Craig at Craig.Bowlus@aon.com or visit him on LinkedIn.

Technology trends for risk pools

Nov 27, 2013

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