Staking a claim: a spate of mergers and acquisitions activity in the RMIS world shows how difficult it is for independent shops to survive as the marketplace thirsts for "value-added" services

Risk & Insurance, Sept 1, 2004 by Cyril Tuohy

It's been a heady year so far for risk management information systems vendors. Big-name brokerages have bought established companies in their bid to beef up their RMIS bona tides. Some independent houses have merged to form one company instead of two. And, there's plenty more to come by the end of the year, consultants say.

So far, two of the Big Three insurance brokerage houses have already made their moves. Aon's purchase of RiskLabs and Marsh's acquisition of Corporate Systems Inc. shows how aggressive the brokers have become in adding a solid RMIS offering to their panoply of services.

A BUYER'S MARKET

The current economic cycle is playing in the buyers' favor, says one consultant.

"It's probably a good time to be a buyer," says Rick Betterly, president of Betterly Consultants. "If you are a broker, you are coming into a cycle of increased earnings over the last few years, of services providers who've been struggling over the last few years as risk managers' budgets have been overwhelmed by risk financing cost increases."

Aon announced its acquisition last winter. Marsh went public with the Corporate Systems purchase in the spring, a purchase that should further strengthen the broker's position among the carriers.

Both Marsh and Aon have beat their smaller competitor, Willis, to the punch and the world's No. 3 broker now finds itself in the position of "third man out" with respect to its ability to offer clients a risk management information system. It won't be long before Willis, which has big corporate clients who won't be shy about demanding that the broker offer a robust RMIS platform, makes an announcement of its own, says one consultant. In addition, Willis CEO Joseph Plumeri isn't about to let the competition get the best of him, says Rick Sabetta, principal of the consulting firm Risk Navigation Group. "He [Plumeri] is a real marketing guy so he shakes things up," says Sabetta.

In August a spokesman for Willis said the firm had "no plans to make such an acquisition [RMIS] at this time," since it represents a departure from a business model grounded in being "great insurance brokers." Besides, the firm has access to modeling and forecasting systems already.

Big-name brokers are not the only ones getting involved in the risk management information systems mergers and acquisitions game.

INDEPENDENTS ON THE MOVE

Independent vendors are in on it too, with an Irvine, Calif.-based firm known as StrataCare Corp. leading the charge.

In the spring, it announced the purchase of Valencia, Calif.-based GenSource Corp., a vendor highly respected for it's technological prowess in claims and policy administration.

The StrataCare-GenSource union represents a new twist in the mergers and acquisitions cycle, says David Duden, director of risk management information systems at Deloitte Consulting. Service providers are now buying one another. Mergers and acquisitions is no longer just a game played by carriers and brokers.

"It's not just brokers or insurance companies acquiring risk management information systems providers, but now there's mergers between services such as the StrataCare and GenSource," says Duden. "So that's been a little bit unusual."

StrataCare executives claim this union is the perfect marriage. StrataCare, which has made a reputation for itself as a fast-growing company fueled by a savvy marketing strategy, is a quintessential success story in the bill review space.

GenSource, which supplies the disability rating for nearly every insurance carrier and lawyer handling workers' compensation claims in the state of California, is best known for its technological prowess.

"We're betting our money on the fact that there are marketplaces out there that are not being fulfilled by what we like to call best of breed or best in class," says StrataCare CEO Scott Green. "The marketplace is divided into the companies that try to do everything yet struggle in offering the top-line service across the board, and the small players that may be very good in a local market or a local region."

"GenSource has always been a very technically strong company but marketing has never been one of our strengths," says Eric Hoffberg, former CEO of GenSource. "StrataCare has done a great job of that and that's something we need the benefit of. I think our close relationships with our clients, the way we do a lot of custom development for our clients, a lot of consulting and analysis I think will benefit StrataCare."

This union offers the marketplace services that competitors can't, Hoffberg adds. GenSource will become a division StrataCare, the executives said, headed by Hoffberg.

Robert Faulhaber, CEO of Valley Oak Systems, a vendor that competes against GenSource and StrataCare, admits the union of a bill review vendor with a policy administration player makes sense in theory. In practice, however, bringing the two companies together into a seamless whole is more difficult. Integration of separate computer architectures designed to crunch massive amounts of data is easier said than done.