Banks have embraced this risk management approach as part of the Basel II standards, which require banks to focus on assessing risks more broadly, including operational as well as financial risk.
LogicManager was founded by CEO Steven Minsky, who sold his previous rules engine company, RulesPower, to credit rating company Fair Isaac. The LogicManager product is a new rules engine that's specialized for the insurance industry.
Without the risk assessment tools, Phelps says, it's difficult for managers to see trends as new risks emerge. A new condition, such as a rising threat of an outbreak of bird flu affecting humans, might pose a heretofore unassessed risk to a health care insurer. If one manager raises the issue, others can add their assessments for a companywide perspective on how to cope with it.
Phelps sees something more of a "heat map" taking shape in reports that show the hot areas of concern around the company. But the risk assessment tools haven't been in place long enough for Blue Cross Blue Shield of Florida to judge the return on investment.
Bird flu risk? Better take a companywide view.
Photo by Sabah Arar/AFP
The Right Lens
One of the challenges Phelps and his peers in the field face is changing people's thinking. Risk avoidance isn't the right lens; an insurance company doesn't get to choose whether a flu epidemic is coming. Instead, managers need to assess that risk, decide the possibilities, and then choose what actions to take--including possible revenue opportunities. "If a company is looking to increase revenue, you're not going to get there without taking risks," Phelps says.
Blue Cross Blue Shield of Florida has a long way to go to become the model of effective risk management Phelps hopes for. Today, only a handful of employees use the risk management software, but he plans to extend it throughout the company. "My goal is to put it on our Web site and let anyone in the company use it," he says. No doubt Phelps will have thought through the risks before he takes that tricky step.