It's not easy being big. When Microsoft Corp. went looking for a risk management information system, there was nothing on the market that met its needs.The available systems assumed a company bought traditional insurance in one-year increments, and the software giant's approach was anything but traditional.
When Microsoft thinks about transferring risk, its main focus isn't traditional policies like property and casualty or general liability. Given the nature of its business, its limited physical plant and the fact that it doesn't operate any stores, the software giant is more concerned with risks related to intellectual property rights, regulatory matters and business contracts and relationships-areas where loss events occur infrequently, but can prove very painful financially. Microsoft employs sophisticated methods to transfer such risks, like captives and finite programs, and it tends to have high self-insured retentions. It also has multiple policies, with limits totaling hundreds of millions of dollars.
To streamline its management of claims information, it needed a system that would let it look at all its coverage, premium payments and how remaining limits might be decreased by claims that had not yet been processed or loss events for which claims had not yet been filed. When it couldn't find a system with those features, Microsoft had one built from scratch in just seven months by Infosys Technologies Ltd., a software company in Bangalore, India. Using Infosys allowed Microsoft to put in place "a pretty complex system at much lower cost than if we had done it in the U.S," says Brian Warren, senior claims manager at Microsoft.
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Warren says Microsoft can now look at its losses and insurance coverage from its own perspective, rather than that of an insurer. The system also provides a more realistic depiction of its policies, claims and loss events, which are recorded whether or not they are covered by insurance, he says. The system is not yet a year old, but it has already boosted customer satisfaction and allowed for faster inputting of loss event data and quicker production of reports. While Microsoft is still refining the system, "our hope is that we've now got something that can grow with us, and not lead to the kind of dead ends that we were hitting with other systems," Warren says.
INSURANCE – Silver
AT&T Wireless
AT&T Wireless is a fairly young company, having been spun off by AT&T Corp. in 2001, but it's already focused on enterprise risk management. In late 2001, the wireless telecommunications company decided that the current complex regulatory environment and legislative push for better risk disclosure meant that it needed a company-wide view of its risks. Its risk finance, insurance and loss control group led an effort to pull together into an enterprise risk management unit all the parts of the business performing such functions. The team then undertook an enterprise-wide risk assessment designed to familiarize executives with the unit's work. Representatives from all the business units came up with a framework of the company's risk exposures and a list of its goals. The survey asked participants to rank their confidence on achieving each goal and select the top three risks from each of 12 categories. The list of the company's top 10 risks that resulted was presented to top management and the audit committee. The risks on the list "were strategic in nature," says Bill Buchan, executive director of enterprise risk management. While the enterprise risk management process is still in its early stages, it has already improved corporate understanding, the company says.
INSURANCE – Bronze
American Commercial Barge Lines
With 5,000 barges and 200 towboats operating on the inland river system, American Commercial Barge Line (ACBL) of Jeffersonville, Ind. decided it needed an insurance program that would reward it for operating safely. After its losses mounted in 1999 and 2000, the company that provided ACBL's marine package insurance demanded $2.5 million more in premium and wanted to double both the $25,000 per case deductible and the $4 million annual aggregate deductible. Doug Ruschman, ACBL's vice president of corporate safety and risk management, responded with new loss control measures, then looked for a better deal.
The company's broker, AON, brought in ACE-USA Insurance, which offered coverage at a premium a bit higher than what ACBL was currently paying, but with the same aggregate deductible. ACE also said that after the insurer paid $4.5 million in claims, ACBL would have to pay the next $3.3 million. "We'd always been a safety conscious organization, but this brought new focus to it," Ruschman says. "It gave the whole company a way of saying, 'We have a goal to meet.'" ACBL's claims costs fell almost $7 million in the first year. What's more, it has yet to enter the $3.3 million loss corridor.
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