Benita Gayton and Beth Grossman urge risk managers to play a greater role in controlling the quality of data
As a risk manager, are you being required to provide more detailed information in order to get quotes for coverage? Do you feel as if you have no control over claims data? Are you having a hard time getting coverage in certain areas?
If you answered yes to any of these, you will be happy to know that the solution is closer than you think, and that it is something that you can participate in making happen.
Historically speaking, insurance and reinsurance companies have driven the data definitions that are needed to make business transactions. But should the quality of the data not be controlled by the people that start the process?
Risk managers have noticed that data definitions change as they move between brokers and third party administrators, resulting in duplicate entry of the same information. This wastes time and effort from all parties involved, creating unnecessary expense. By having consistent data, the need to re-key becomes null and void and benefits all those involved in the insurance and reinsurance value chain.
According to the new risk management standard, created by the Institute of Risk Management (IRM), the Association of Insurance and Risk Managers (AIRMIC), and ALARM, the National Forum for Risk Management in the Public Sector, 'risk management protects and adds value to an organisation' by 'providing a framework for an organisation that enables future activity to take place in a consistent and controlled manner, contributes to more efficient use and allocation of capital and resources within the organisation', and should strive to 'optimise operational efficiency.'
One would agree that these are indeed the goals of risk management. One might also agree that they would be easier to achieve if the information that is passed to and from risk managers were in a consistent format.
This is not new. A few years ago, the US Risk and Insurance Management Society, Inc. (RIMS) and the Quality Insurance Congress (QIC) developed a quality scorecard. The purpose was to evaluate insurance products and services according to performance criteria. The results, as you may recall, were not surprising. Risk managers then, and now view the world of insurance as an industry of poor service. Risk managers often have to wait months to get an actual policy in their hands, and buyers are still likely to find errors in basic information.
Fortunately, advances in technology have made it possible for today's risk manager to believe that the day is coming when all the individuals involved in a business transaction will see the same data in a common language.
Developing standards
Risk managers need to be active in the process of data exchange by ensuring data quality. They have a much greater impact on the flow of information than they might expect. In many cases, the risk manager starts the whole chain of events by first identifying his company's needs. By working with ACORD (Association for Cooperative Operations Research & Development) and its members (insurance and reinsurance companies, brokers and solution providers) to help develop the standards, risk managers are also helping define the strategy of how they want to do business with their partners. If risk managers do not participate, they can be faced with the broker or insurance company telling them how to report their insurance details.
Take, for example, the work ACORD has already done with risk managers. A few years ago, ACORD contacted risk managers to make sure the XML standards being developed reflected their business needs in creating a consistent form of information. Today, risk managers are letting us know that they can handle the data better with Excel spreadsheets. So, ACORD developed the capability to save Excel worksheets in the industry standard XML format. Without risk managers' input, we would be continuing to develop only XML frameworks for the data. Instead, we are meeting their needs. In short, by working with ACORD, risk managers have had crucial input into developing how they want to work - the risk manager is setting the strategy.
Currently ACORD's exposure reporting working group is defining the standards required for reporting exposures for location-based risks. The group, which is comprised of insurance companies, brokers, Lloyd's syndicates and reinsurance companies, has focused on identifying and agreeing the business data that is required, and then on creating standard formats that will enable it to be sent between business partners. These format requirements will be defined by the group, but are expected to include both spreadsheet formats and XML message formats, as per the comments of risk managers.
Robert S Childs, chairman of Lloyd's Market Association (LMA), noted in a recent letter to LMA participants that, 'Following the events of 9/11, the need for a consistent approach to the provision of risk location data in order to quickly and easily establish the market's exposure to a catastrophe, be it natural or otherwise, is necessary.' He continued to say that, until recently, 'Clients and brokers have been asked to provide different types of location data in different formats, resulting in difficulties in sharing data across the market and incompatibility with standard risk modelling software. To overcome these problems the LMA Data Standards group was formed, with the aim of defining a data standard that could be used across the market. Establishing a more efficient process for the flow of this information into the market could also allow syndicates to maximise their use of capacity by better understanding their exposure, and allow for more accurate pricing based upon a greater knowledge of their exposure.'
The LMA group defined a set of common data elements and guidelines for their use, for commercial property, household, onshore energy, fine art and commercial vault business. After ratification by 13 Lloyd's managing agents these data requirements were offered to ACORD for inclusion in ACORD's new global data standards currently under development. The LMA group continues to work with ACORD to ensure that the LMA requirements will be included within the ACORD standards. As part of the ACORD process, these requirements have been further validated by London brokers and company underwriters and were formally voted on by ACORD members in June.
But to ensure that the market is able to adopt the new ACORD standards immediately and to ensure that the standard can be used for 2004 renewals, brokers and managing general agents (MGAs) need to plan now for implementation of these standards.
It is important to keep in mind that, although a great deal of the initial work done to date has been driven to some extent by London, global participants have contributed to this work and will continue to do so.
This work will not be kept in isolation, but will continue to evolve - and one key area of input that is still missing is the involvement of the risk manager. Yet, ironically, it is the risk manager that starts the process. It is up to risk managers to discuss this important initiative with their IT and operations staff and with other decision makers and to see that it is implemented.
Benita Gayton is program manager, commercial and specialty lines, ACORD. Beth Grossman is assistant vice president, industry relations, ACORD. www.acord.org
ACORD
Based in New York, ACORD (Association for Cooperative Operations Research and Development) is a global, non-profit insurance association whose mission is to facilitate the development and use of standards for the insurance, reinsurance and related financial services industries. With offices in London as well, ACORD accomplishes its mission by remaining an objective, independent advocate for sharing information among diverse platforms. ACORD standards and services improve efficiency and expand market reach. Affiliated with ACORD are hundreds of insurance and reinsurance companies, and thousands of agents and brokers, related financial services organisations, software providers, and industry organisations worldwide.
