AON gets a grip: tracking carrier quotations for different lines in separate markets gives Aon a wealth of information and power in its grasp.

In the past, brokers really just speculated on the direction of the insurance markets. Markets moved up or down, turned soft or hard, went tight or loose. Brokers could make an educated guess about the market's direction.

Going forward, however, most clients and brokers, and even carriers, really don't know where the market is headed, except by trying to draw conclusions based on what has happened in the past, typically during last year's renewal.

But today, if you asked your Aon broker that same question, you would get a very different answer because last November, Aon began to roll out its "Global Risk Insight Platform" known internally as "GRIP."

This system gives Aon brokers and clients a grasp, in real time, of what is going on in the insurance buying markets in the months to come. The platform is designed to anticipate pricing and carrier behavior. If the market hardens, the analysis may show prices beginning to go up in a particular location, and then show how that hardening is spreading to other locations or to other lines of business.

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The roots of the system date back to contingent commission controversy when the big brokers agreed to disclose all the commissions with any particular carrier to the client. Today, when Aon asks its carriers to quote on specific business for a particular client, it creates a disclosure reporting form for its clients.

Using the data in those disclosure reports as a base--coverage, limits, retentions, pricing, commissions and more--Aon created an ongoing, real-time reporting system that could be used to bind policies in a way that gives clients the best placement options, regardless of geography. Every effort was made to keep the graphical user interface simple, and new data is entered into the database every day.

The idea had its beginnings in February of 2008, in the wake of a decision by Aon to reduce the number of worldwide sales and marketing tracking systems from 27 to one single program--Salesforce.com. The development of the GRIP system itself was accomplished through Aon's Centre of Innovation and Analytics based in Dublin.

A team of executives from Aon's information technology, risk and consulting divisions, was established to create the procedures needed to implement such a big change in the analytics of placement operations. Key to the project's success would be acceptance from clients and Aon's army of brokers around the world, explained Maureen Baum, chief operations officer, Aon Brokerage Group.

The executive team included Ted Devine, president, Aon Risk Services; Michael R. Moran, president, Aon Carrier Consulting; Peggy Stewart, executive vice president/COO, Aon Risk Services; John Elliot, chief information officer, Business Unit, Information Technology; Baum; Brian Parkes, chief of information management and global risk insights, Aon Commercial Services & Operations Ireland; Dennis McClaughlin, CEO, Aon Center for Innovation and Analytics, Dublin; and Lambros Lambrou, executive vice president, Aon Risk Services and head of Aon Analytics.

Data on each insurance policy quotation for every carrier for each risk being placed is entered into a newly created database from the commission compliance reports and other sources, according to Aon executives.

The quotations are called trades and represent specific bids that carriers have made to get the account. When a policy binds, the information is updated. Thus, usually months before a policy binds, GRIP can see the shape of the markets to come based on the quotation data.

Aon has approximately $54 billion of global premium flow, and sees a multiple of that value in terms of the information in the quotations. That volume of information generates a relatively accurate measure of where the market is at, at particular times, across a variety of product lines. Because GRIP has all the pricing data, it can show, for example, whether it might be cheaper to place a property catastrophe policy in London, in New York or in Hong Kong.

GRIP is regularly updated to include additional data that will help risk managers judge how their risks are viewed by the market. For example, Aon Analytics' Lambrou said GRIP plans to add loss data fields to the system in upcoming versions.

One of the most challenging obstacles to overcome was to standardize international policies by product line for a consistent analysis across geographies. In the past, for example, it was hard to compare a property policy generated in Spain from one issued in the United States, from one emanating from Japan. GRIP puts an end to that.

Aon began testing the system with clients last winter and spring after extensive training sessions with Aon employees throughout the organization. The presentation itself, on a series of screens, is colorful, dramatic and easy to use.

For carriers, the system contains potentially valuable information about a carrier's own pipeline and pricing strategies. For example, clients can quickly see whether other carriers are cutting prices on renewals or new lines of business. No one knows faster than Aon when a soft market will turn or whether a particular carrier is aggressively trying to gain market share.

For clients, Aon can use GRIP to analyze what it calls a quote/submit ratio by industry, segment, product, city and carrier. It can also look at retentions and limits, and begin to discern the different risk appetites of carriers for a particular product. This is all based on the carrier's trading behavior as measured by its quotes and binding data.

In this era squeezed margins, Aon itself has access to invaluable information on commissions, even before binding. If the commission rate on a particular risk is well below the average for that product line or for that carrier, then the placing broker and Aon management will know. If the commission is above average, then management will also know.

Eventually, it should help Aon management better price its own services, especially important in light of a market of changing commission strategies.