1. RM: The topic of our roundtable
is using big data to improve risk
management and determine a
company’s total cost of risk. The
challenge faced by the insurance
industry today is, now that we
have access to an unprecedented
amount of data, how do we put
it to practical use? How do we
use it to influence risk manage-
ment decisions? But before we
get to the big data element, we
first need to understand what we
mean when we refer to “total”
cost of risk. What combinations
of insurable and non-insurable
factors make up that framework?
Kobyra: From our perspective,
for example in workers compen-
sation, the clients have to deal
with both their retained losses
within their deductible as well as
the fixed cost premium. I would
define total cost of risk as a
function of the retained losses,
the insurance premiums associ-
ated with that, plus frictional
costs such as taxes and claims
management.
Flatt: When we talk about the
total cost of risk, it is the retained
losses for a lot of our clients that
represent the biggest portion of
Using Big Data
to Improve
Risk Management
These days, everyone is talking about the value of big data, but finding practical ways
to put this information to use remains a challenge for risk managers and ­insurers
alike. In this roundtable discussion, sponsored by Zurich, we discuss how ­companies
can use big data to help gain a comprehensive, 360-degree view of total cost of risk
and, in doing so, optimize the return on their mitigation investments.
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Fick

2. PARTICIPANTS
the spend for their risk manage-
ment programs. As much as 60%
to 80% of the overall cost is within
the retained losses. Just to clarify
some of the other components,
you have claims administra-
tion costs, you have collateral,
you have the value of volatility
and then, of course, you have
the insurance transaction, so all
those things together are how we
define total cost of risk.
Hoffman: There are a couple
of other components from a
risk manager’s standpoint that
I would add. My entire staff,
Brandon Fick
Head of Domestic Casualty
Zurich Global Corporate in North America
Christopher J. Flatt
Workers Compensation COE Leader
U.S. Casualty Practice
Marsh USA, Inc.
Craig Hoffman
Risk Manager
Wakefern Food Corp.
Paul Kobyra
Managing Director
National Casualty Practice
Marsh USA, Inc.
James Litterer
Senior Vice President
East Region Casualty
Zurich Global Corporate in North America
Lawrence Zeiner
Regional Claims Vice President
Zurich North America
Kobyra ZeinerFlatt
Hoffman Litterer
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3. whether it is claims manage-
ment, loss prevention, insurance
procurement or analytics, is all
part of our total cost of risk and
is all included in risk manage-
ment allocations.
Fick: From the insurance car-
rier perspective, the biggest
component that we focus on
is the insurable losses. A lot of
our business is corporate risk
management business, which
retains a good percentage of that
risk, so the retained losses are
the primary focus when we think
of total cost of risk.
Flatt: One other thing I would add
is that it is important when you’re
looking at a strategy for how
you’re going to address, reduce
and manage these costs, you’re
looking at everything in a more
holistic way because there is a lot
of interrelation. The things that
you can do to address one aspect
or element of total cost of risk
may impact another.
RM: What is the biggest change
in how total cost of risk has
entered into the risk manage-
ment framework today now that
you have more data to feed your
calculations?
Zeiner: That’s the key point: The
information in many cases is
readily available, the universe is
much bigger, there are better and
stronger benchmarks, there’s
more actionable data that we
can use, there’s more credible
data that we can use and, for our
customers, it allows them to plan
and execute—not only in the
near-term, but over the long-
term horizon as well.
Kobyra: There are quicker
remediation solutions that come
right to the table with the data
that we have today. You can
quickly identify where there are
problems brewing. From that
perspective, I think that’s where
it has changed dramatically. In
the old days, you used to have
to have to wait maybe a year to
see how things developed and
then develop actionable items to
try to change the trend. With the
data we have today, you can try
to replicate positive trends in the
areas where it is not working.
Litterer: It’s the ability to put an
action item in place as a result of
the data. It’s not just a collection,
it’s the usage and the coordina-
tion of risk-engineering claims
and other alternate services to
bring solutions to the table faster.
Zeiner: We’re able to do a much
better job forecasting. In the
past, as Paul mentioned, we
were looking back and using the
data. Now, we can use the data
to look forward and really focus
on clarifying our view of where
problems are developing so that
we will have a much better sense
of where we are going to end up.
Fick: The whole concept around
predictive modeling is big on
both sides of the equation—the
post-loss as well as the pre-loss
side. We now have the ability to
look at the characteristics of cer-
tain claims to learn what we can
do better the next time we see
the same traits show up. We are
also doing this on the pre-loss
side where we’re looking at the
characteristics of the custom-
ers’ risk profile to avoid the loss
altogether by getting out in front
of any problems.
Hoffman: From a data stand-
point, it’s an interesting transfor-
mation. The insurance companies
I worked with 10 or 15 years ago
were still on old mainframe sys-
tems. Now the insurance compa-
nies and the TPAs all invested in
technology and understand the
importance of having the data
coded correctly because “garbage
in, garbage out “ doesn’t do
me any good as a risk manager.
With the new technology and
capabilities, if I have great data,
I can work with my safety profes-
sionals and say, “These are the
problems we have in this part of
the store,” or “these are the prob-
lems we have in this warehouse.”
That’s what really gives us the
biggest bang for our buck.
Flatt: From a broker’s perspec-
tive, we have a tremendous
amount of data gathered from
the business that we’re placing
and the programs we are helping
our clients manage, and technol-
ogy allows us to leverage that
data. It really helps us customize
and specialize programs for our
clients. It’s not a one-size-fits-
all kind of an approach. Let’s
take this data and let’s make
sure we’re making relevant
recommendations on poten-
tial solutions for the client or
recommending actions they
might want to invest in or take
to reduce their costs. Executing
on what we learn from the data
is critical.
Zeiner: The medical component
of our data is a bigger part of the
challenge today. It is also the
area in which we at Zurich, as
well as the rest of the industry,
are investing a lot of time and
energy to really understand what
is behind an injury, what the best
treatment protocols are, and how
you bring a person back to work
effectively and keep them back
at work. Five or 10 years ago, that
data just didn’t exist, so there
were a lot of assumptions made
about practices that we can now
narrow down to very specific
opportunities.
RM: What kinds of customers
make particularly good candi-
dates for a tailored “total cost of
risk” mitigation approach? What
mindset and commitment are
required?
It is important
when you’re
looking at a
strategy for how
you’re going to
address, reduce
and manage these
costs, you’re
looking at every-
thing in a more
holistic way.
Flatt
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4. Zeiner: For someone who is
focused on continual improve-
ment, this is an effort that
extends over one year, three
years or five years. Sometimes
you don’t reap the full benefits
in the first year, so you need to
have a partner who is thinking
long-term, who is able to invest,
who is able to see it through,
and someone who can change
course midstream. The data
allows us to structure some
quick-hit improvements, some
midterm improvements, and
then longer-term sustainable
improvement. It’s those longer-
term grabs where we need a
partner who is really focused on
continuous improvement and
who embraces the data, which
not all customers will do.
Flatt: In terms of a profile of
the type of buyer, if they have
that commitment, we have
tools we’re able to leverage that
can help everyone—not just a
particular customer. Some things
will resonate more with certain
buyers, like the retained loss
component, but there are guar-
anteed cost buyers who don’t
have retained losses that clearly
will benefit from what we’re
learning from the data.
Kobyra: I agree. Underlying losses
are the driver for the underwrit-
ers to quote the program, so if
that’s under control and in focus,
then your total cost of risk will be
lower from account to account.
I think all customers, regardless
of size, should focus on action-
able items to contain loss costs.
Litterer: The perfect profile for a
client, whether it’s guaranteed
costs or loss-sensitive, is one
who also has the resources and
ability to implement the tools
that we have to offer. So they
should have their own claims
professionals and their own
safety professionals to mirror
and implement what we do. If
it’s a professional risk manager
versus a buyer of insurance,
that is a big difference. A buyer
of insurance is probably not the
best profile for a successful total
cost of risk approach.
Fick: Part of Larry’s point about
the commitment of the buyer is
that, while they have the com-
mitment, they may not have
the resources, and that really is
what we’re here for. The broker
and the insurance company
need to partner up to provide
those resources, as well as to
become an extension of the risk
management department for
the customer. I think that’s really
what you see when you talk
about the commitment. Most
customers buy into the concept.
It’s just a matter of having the
resources available.
RM: Craig, as the risk man-
ager at the table, is this sort of
approach a tough sell for your
organization?
Hoffman: I’ve been at my com-
pany for three and a half years.
When I took over, my division was
an insurance-buying organization
called the insurance division. With
the right resources, I have trans-
formed it to a risk management
division. We didn’t have a workers
comp claims team. We looked at
comp as a cost of doing business,
and just relied on the carrier to tell
us when the person was ready
to come back to work. We have
totally transformed that relation-
ship. We are now a customer that
is looking at total cost of risk and
we understand we have opportu-
nities to reduce that risk and are
looking forward to doing that with
the right partners.
RM: Did you need to have any of
those quick hits to sell it?
Hoffman: One of the quick hits
that we did get was a reduction
in premium up front, which was
definitely helpful for me to sell it.
When you save money up front,
it allows you to invest money in
the staff that you can then build
that program around.
RM: We’re talking a lot about
how this sort of analysis works
in general, but can you think of a
specific scenario where this has
led to measurable improvement?
Zeiner: When we look down
through our cost-driving lens at
Zurich, one of the things we know,
and it is common knowledge,
is that certain states cost more
than others. So with a national
customer who has national
exposure, those states aren’t all
treated equally. We try to get the
customer to understand that
those higher-cost states probably
need some immediate attention.
Typically, we’ll look at those two or
three high-cost states and put a
plan in place. You begin to see the
benefits accrue in the first quarter
and the second quarter, and that
gives the risk manager the confi-
dence to go a little further in year
two or year three. Once we’ve
built up credibility with results,
we want to work closely with the
customer’s business managers to
help them think about how they
do business and the things they
do that can change outcomes.
Hoffman: In January of this year,
we had a third party warehouse
operator hiring and managing
part of our workforce, and they
had an experience mod factor of
well over two and a half due, in
large part, to a failure to focus
on safety and manage these
claims. So one of the things we
did is convince executive man-
agement to eliminate the third
party, hire those associates and
change that culture. We still
have a way to go, but I see this
as a three-year turnaround until
we can say we are a safe culture
at that facility. We want every
associate to be safe.
Big data is nice,
but you have to be
careful you don’t
just take data on
the surface and
apply it. You have
to understand
your customer and
what they’ve been
doing to drive the
outcomes you see.
Fick

5. Flatt: These types of success sto-
ries are key to client differentia-
tion with the carrier. As a broker,
we want to make sure that we’re
using what we know about our
clients from data and analytics,
and actions they have taken to
position them best within the
market and with their counter-
parties. Having the investment
and the commitment to doing
the right things to control their
losses be credited on the front
end before actually seeing the
results is important and clearly
an indication of a solid trading
relationship with the carrier.
Zeiner: What we often find is
that companies don’t always
understand their own costs,
so one of the first efforts you
go through is to really try and
educate them on what gener-
ates their costs, why their costs
are the way they are, and what
are some of the things that we
can collectively do right. Big data
allows us to make many com-
parisons to frame the opportu-
nity for the customer.
RM: What about third-party
administrators? Where do they
fit in from an underwriting
perspective?
Fick: If you look at total cost of
risk and outcomes, they’re a big
component. A customer like
Craig is going to consider all his
alternatives and, given the size of
his program, TPAs play a big role
here. The key when using a TPA,
from our perspective, is to make
sure we’re still a part of that pro-
cess. We want to be a part of the
relationship. We want to use our
past experiences to deliver insight
to the customer and work closely
with the TPA to make sure we’re
achieving the optimal outcomes.
Our goal is to work even closer
with the TPA to achieve this.
Litterer: It’s a fruitful partnership.
The larger the scope and size of
the company, a lot of times, a
TPA is the way they want to go
for more portability and poten-
tially increased claims service, so
it’s something we have to work
within and just use our tools in
a different way to help augment
what they do. There’s no less or
more carrier involvement, it’s just
a different path.
Zeiner: We all still have the same
ability to look into the data, to
collect the data and to have those
discussions, so the customer
relationship doesn’t change. It’s
just a matter of who is going out
and implementing the changes at
the end of the day.
Hoffman: From a risk manager’s
standpoint, the TPAs give you
options. You may or may not
be excited about your carrier’s
claims handling services and you
may want a TPA to provide con-
sistency to your program. I have
a TPA on my liability program
that we’ve been with for 10-plus
years, which has allowed us to
switch carriers three times dur-
ing that period. The TPA allows
us to maintain consistency with
a team of adjusters. I don’t have
three different data sources. In
addition, when you talk about
the big data coming in, it’s
consistent. The same TPA has
had my data for 10 years, which
has allowed us to customize
the data fields for our business.
As a retailer, there are different
things that we want to look at.
We think about the different
aisles in our stores—the grocery
aisle, the dairy aisle—and the
TPA has the ability to have those
custom codes. Carriers do too
now, but that gives us flexibility.
Flatt: When we’re talking with
our clients about the use of a TPA
in an unbundled program or the
use of carrier claims handling in
a bundled program, ultimately
what we try to help them with, in
terms of their decision-making,
is understanding who they are
partnered up with that’s going
to achieve the best claim cost
outcomes, who has the right net-
works and so on. For example,
after a claims handling issue is
identified, the ability of the TPA
or carrier to change providers in
real time to make sure clients
benefit from better outcomes on
the claims is important.
RM: Ultimately, how will the
influence of big data and an
understanding of total cost of
risk change how insurance com-
panies underwrite?
Litterer: There is no endpoint. It
is a constant evolution and pro-
cess of improvement. Once you
get to that 360-degree review
and implement your plan and
procedures, it’s about constant
improvement. Your tasks may
change because of different
factors, different hot points and
different pressure points, but as
the data changes, so will your
actionable items.
Flatt: I think that we are able to
have a very customer-specific
solution set. It’s becoming less
about the insurance transaction
and more about looking at all
the other aspects of total cost
of risk in concert, so I see being
able to deliver more customized
and specialized solutions and
the most efficient programs to
our clients as one of the major
influences of leveraging big data
as a broker.
Fick: Everyone’s talking about
big data. Really, it’s what do you
do with it, what insight do you
give the customer, and, when
you have insight that may need
a solution, can you provide the
solution? Then you take that one
step further and use that infor-
mation to better underwrite the
risk to create a tailored program
that meets their needs.
We can use the
data to look
forward and really
focus on clarify-
ing our view of
where problems
are developing so
that we will have a
much better sense
of where we are
going to end up.
Zeiner
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6. Kobyra: I think Craig said it best
earlier: it’s not an insurance
department anymore, it’s a risk
management program. You
don’t just worry about the insur-
ance once a year and transact
the renewal. You have to use
the data to make effective
changes to actually lower your
total cost of risk. It all circles
back to a 365-day cycle, not just
a once-a-year renewal with the
insurance company.
Hoffman: You’ve seen risk
management departments grow.
Some companies have one risk
manager; I’ve got a team of 13
individuals and am looking for-
ward to growing that, hopefully,
as I continue to reduce that total
cost of risk. But from an under-
writing standpoint, big data also
allows me to understand my loss
history and analyze the pro-
grams that the brokers and carri-
ers are presenting to me. Should
we be taking on that variability,
should we be increasing reten-
tions using our captive and really
taking on the volatility of the
insurance marketplace? Every
risk manager loves to be in a soft
market, but when those hard
markets come, you have issues if
you haven’t done all these appro-
priate things to reduce your total
cost of risk in the first place.
Kobyra: The fundamental change
from 15, 20 years ago is that
there was only the one essential
buyer in any organization and
that was the risk manager. They
made the decisions. Now there
are many within an organization
who are working each and every
day to keep the cost down.
Litterer: It’s a bigger bet on
our part from the insurance
carrier believing in what we’re
going to do and how it’s going to
pay off. We’re taking our credits
upfront and giving that to the
client when we know that it may
take 12, 18, 24 months, whatever
it may be, to see results, but
we’re taking an upfront bet on
our abilities.
Fick: I think the biggest change
is going to be if you look at
traditional underwriting, under-
writers like to see it on paper,
actuaries like to see it on paper.
They like to see a five-year his-
tory, take a look at the losses
and use historical data that
may not be reflective of the risk
today to predict what is going to
happen. If we’re asking custom-
ers to make this investment,
use analytics, improve the risk
profile, put programs in place to
improve on the pre-loss side, we
have to make a certain bet that
improvements are going to take
place, and you’re not going to
see that show up on paper right
away. Insurance companies are
going to have to tap into their
past experiences, take a little bit
of a rearview mirror approach
and use the knowledge they
have to get a leg up on the
competition and more appropri-
ately price the business for the
customer. That’s the change I
see coming in underwriting.
Flatt: One of the bigger changes
is along this evolution. Clients are
looking to brokers for the same
level of sophistication as carriers
when it comes to analytics and
data and analysis and tools, so
we put a lot of resources and
investment into making sure we
have those capabilities. Using
what we know about our clients
in parallel to what the carriers
are doing helps the dialogue
when we’re negotiating on any
element of total cost of risk,
whether it is the risk transfer
piece or some action on a safety
protocol where you’re not going
to see the benefit for some time.
We’re all in this together and
clients are demanding a higher
level of sophistication.
RM: Overall, what will be the
impact of big data on the insur-
ance industry?
Fick: I think when you look at big
data, it emphasizes the need to
get even closer to your customer
than ever before, so that you can
understand their risk and what
they have been doing to manage
it. Big data is nice, but you have
to be careful you don’t just take
data on the surface and apply
it. You have to understand your
customer and what they’ve been
doing to drive the outcomes you
see in the data.
Zeiner: We know a lot about
what good cost performance
looks like. In the past, we didn’t
necessarily share that informa-
tion and perspective. It wasn’t
that we didn’t want to do it but,
in most cases, we didn’t have the
tools to do it effectively. Now we
have the tools and experience to
help customers understand and
act to aim for top performance.
Looking forward, we feel it is
one of our primary obligations
to our customers to help them
understand what truly good
performance looks like.
Kobyra: I think that those insur-
ers or brokers who don’t use
analytics will be left behind. The
way the world is going, if you
don’t have actionable data, you’re
not going to have a solution for
the clients that you’re trying to
gain or keep. n
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compiled for informational purposes
only. Zurich neither endorses nor
rejects the recommendations of
their discussion presented. Further,
the comments contained in this
article are for general distribution
and cannot apply to any single set of
specific circumstances. If you have
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this article relates, we urge you to
consult your own legal counsel.
There is no
endpoint. It is a
constant evolution
and process of
improvement.
Once you get to
that 360-degree
review and imple-
ment your plan
and procedures,
it’s about constant
improvement.
Litterer