Online Benchmarking Fills Broker, Risk Manager Needs forCurrent Data

Risk management information is more like fish than wine–it doesnot improve with age, benchmarking experts agree.

“Management is not impressed with last years dataor even lastquarters data,” noted Christopher Mandel, vice president of the NewYork-based Risk and Insurance Management Society.

Timely delivery of relevant information is the driving forcebehind the online benchmarking tool developed by RIMS and AdvisenLtd., a New York-based firm that provides analytic and benchmarkingtools to the commercial insurance industry.

“Risk managers who give Advisen their information can have oneof the most critical pieces of the risk managementpuzzlecontemporary dataavailable to them instantly,” said Mr.Mandel, who is also vice president, enterprise risk management, atUSAA in San Antonio, Texas.

Tom Ruggieri, chief executive of Advisen, pointed out that“because the survey is online, there is more data, its more timely,more reflective of market trends, and therefore much morevaluable.”

“Not only are we getting dynamic insight into pricing and limittrends, we are also getting a broader view of the market acrossvarious types of insurance,” Mr. Ruggieri said.

“It is a tremendous advantage to see information quickly on theInternet, as opposed to a book that becomes outdated almost as soonas it is published,” Mr. Mandel added. But he pointed out that manypeople still want the book, and RIMS will also be making the dataavailable in book form.

“The reason that the data are current is because risk managersare constantly adding new data to the system as their programsrenew,” noted Dave Bradford, Advisens chief knowledge officer.“Virtually as soon as new data are entered, they flow through tothe benchmarking tools.”

The RIMS benchmarking tool permits brokers and risk managers tocompare limits, retentions, premiums, cost-of-risk and othermetrics by industry or line of business. Lines of business includedirectors and officers, fiduciary, employment practices,professional, property, general liability, and workerscompensation. There is also the option of comparing companies atall revenue levels or limiting the comparison to those with over orunder $1 billion in annual revenue.

After the risk manager or broker enters the desired comparisonparameters, the system produces charts and graphs showing where thecompany ranks by percentile, or how it compares to median and meanaverages.

For example, assume that an electric utility with under $1billion in revenue has a D&O retention of $50,000. The utility(or the utilitys broker) wants to know how that retention comparesto other similar companies. After choosing the applicable industryfrom a drop-down menu and entering the retention amount, the systemproduces bar graphs demonstrating that about two-thirds of theutilities of similar size have retentions exceeding $250,000.

The implication is that this particular utility is not retainingas much risk as its peers and may be missing out on lower premiumsavailable at the higher retention levels. “That will help riskmanagers when communicating their case for a retention increase tohigher management,” Mr. Mandel explained.

In addition to providing management with a comfort level thattheir insurance programs compare favorably with others in theirindustry, benchmarking is also a potent bargaining tool, henoted.

“Lets say that D&O underwriters are offering an insured a100 percent premium increase and tripling the retention,” he said.“Using benchmarking, the risk manager can go back to theunderwriters and tell them that there is statistical dataindicating that the premium and retention increases are way out ofline.”

“Risk management professionals can leverage this data to makeclear decisions, because it comes from their peers, rather thanfrom potentially biased, sell-side market speculation,” AdvisensMr. Ruggieri noted.

Overall survey results indicated that commercial insurancebuyers experienced only moderate price increases for many majorcoverage lines during 2003s third quarter.

“After the staggering increases we have seen in recent quarters,especially from professional liability lines, the market for manylines appears to be moderating,” Mr. Mandel pointed out.

“These results are the clearest indication of a market shift,”noted Mr. Ruggieri. “They come from the buyers of insurance and area real-time insight into the market conditions risk managers facetoday,” he said.

Risk managers interested in contributing data to and using thebenchmarking tool should go to http://rims.advisen.com.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, November 26, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.