When you're planning a vacation, you know you'll be able to useyour credit card to buy an Eiffel Tower souvenir in Paris, eat atyour favorite churrascaria in S?o Paulo, or get cash from an ATM inTokyo thanks to the use of global standards by banks and creditcard companies.

Of course, compared with the data-intensive, multipartyinsurance process, financial transactions are exceedingly simple.Additionally, the insurance needs of most consumers don't spanmultiple countries and seldom are as immediate as other financialpriorities. Nevertheless, there is opportunity to be gained fromglobal development and application of standards in insurance,whether applied to make domestic operations more efficient orutilized to do business with partners and customers across acountry or around the world.

Insurers also realize, despitedifferences in geography, markets, and products, there are manysimilarities that exist in processes, data, and systems thatbenefit from the application of common standards. “Standards havevalue in improving the smooth operations of the marketplace,” saysSteven Coles, chief information and business improvement officer atAllianz Australia Insurance Ltd. and chair of the ACORD AustralianAdvisory Committee.

“In particular, we see standards having value in heavilyintermediated areas,” he adds. “It's why we've been an earlyadopter of ACORD standards and why the Australian market has lookedat standards both through ACORD and other services as an enabler tomake it easier to communicate.”

Standards development itself is an exercise in UnitedNations-type diplomacy, where colleagues and competitors cometogether on neutral turf within various standards-settingassociations to collaborate.

(For a look at what ACORD is doing, check out the 2010member directory published by Tech Decisions as well asthis 2009 article.)

“We share the same problem most insurers have: We have verysmart people on our staff, but we're limited to the number ofindividuals and skill sets on hand. We have to work together withother companies and pool our talents and resources,” says BillJenkins, CIO of Penn National and member of the Insurance WorkingGroup of the international standards organization Object ManagementGroup (OMG).

Insurers' interest in standards in 2010 also has been impactedby worldwide developments; in particular, the challenging globaleconomy. “Insurers increasingly are looking at standards as a toolto assist in helping achieve operational efficiency and improvedtransaction processing, both of which are critical in markets wherecompanies need to improve business performance and reduce costs,”says Kimberly Harris-Ferrante, vice president and distinguishedanalyst at Gartner Research.

“In 2009, the world drastically changed for insurance companies.The cost pressures drove companies to improve operationalefficiency and to reduce cost, which drove companies to look underthe covers at their core systems and identify ways they couldreduce the cost of these systems by consolidating, modernizing,replatforming, or replacing systems,” she recalls. “Coupled withthis, concerns about regulatory changes and increased need forimproved financial reporting made insurers review the role ofstandards in helping with system-to-system interoperability,reporting accuracy and consistency, and improved operationalintelligence.”

But it hasn't been completely smooth sailing in standardsadoption for insurers. Deborah Smallwood, founder of SMA StrategyMeets Action, observes while cost pressures are increasing interestin standards on the part of IT, those same pressures are strainingavailable budgets.

“Adopting and adhering to standards is a journey with initialhigh costs but with long-term benefits, which is very hard forinsurers to embrace,” she says. “IT people understand and are ableto capitalize on standards for XML messaging, but the whole ITenvironment does not have an enterprise set of standards becausebusiness executives don't get the business value. When IT says itwants a common data model and that's going to cost more money andmore time, the business doesn't buy it.”

GOING GLOBAL

In the world of standards, messaging remains a top priority forinsurers, according to Lloyd Chumbley, vice president of standardsat ACORD. “There is a universal need of insurers around theexchange of data and for information to be shared in a consistentfashion. The specific driver of why it needs to be shared can bedifferent by company, product, or process, but it's about trying todrive efficiency into the data exchange,” he says.

“Messaging standards really have gained momentum during the pastfew years as more insurers have adopted SOA,” Harris-Ferrante says.“As companies build and deploy services, standards will helpsignificantly with reuse, reduced complexity, improved userexperience.”

Chumbley breaks the global standards world into two categories.“Global international” involves using common standards for businessthat crosses international markets, such as intercompany andreinsurance transaction applications. “Domestic international”involves extending existing standards into additional countries orgeographies or working with companies in individual countries todevelop region-specific standards.

For ACORD, a key area of focus in the global internationalcategory has been the London market, which has been following aroad map developed in the mid-2000s for standards development andadoption designed to speed and automate the market's historicallyslow back-office processes. The Lloyds Exchange marked a milestonein late 2009 with the first live two-way deal using the latestversion of the ACORD standard, building on successful one-wayexchanges done previously.

Global standards work also is being impacted by developments infinancial and accounting standards and regulations, such asSolvency II and the planned convergence of IFRS (InternationalFinancial Reporting Standards) and GAAP. For example, Solvency IImodeling and reporting requirements require consistent data qualityand sound data definitions–and that comes back to standards.

“There needs to be more consistency in reporting and fasterability to generate corporate reports for multinational companies.New financial reporting tools and standards are needed to help withcompliance,” says Harris-Ferrante.

SHARING STANDARDS

South Africa, Australia, and China currently are the most activedomestic markets outside the U.S. for ACORD. “In South Africa, themain drivers for standards are new regulatory requirements,”Chumbley reports. “In Australia, it's about business efficiency.And in China, the driver is establishing a common definition ofrisk and coverages to gain a more universal understanding of themarket.”

Over the past several years, ACORD members have worked to createthe South African ACORD standard for exchange of risk detailbetween brokers and insurers. In October 2009, the FinancialIntermediaries Association of South Africa became a member ofACORD, representing a significant win in support of thestandard.

In Australia, Coles sees the drive for efficiency manifestitself in three key areas of standards development. “The market isfocusing on messaging to develop a common way of communicating,establishing a consistency around process, and becoming morestandardized on products that aren't efficiently delivered today,”he says. In August 2009, ACORD members in Australia officiallyadopted the ACORD Messaging Library (AML) data standard, makingAustralia one of the first markets to adopt and implement AML.

Allianz Australia's work with ACORD standards dates back to 2005and began with internal transactions. “There are several reasons wewere an early adopter,” Coles indicates. “First, we were in theprocess of integrating back-office systems, and ACORD standardsenabled that objective. It was a sensible place to start, ratherthan starting with a blank sheet of paper. Second, we realized ifwe ultimately did want to use ACORD standards for messaging [withbrokers], we first needed to get our own backyard in order.”

While Allianz Australia has aligned its efforts with ACORD,Coles notes, the company has extended the standard as necessary toachieve its internal integration and communication objectives. “Weextracted the good stuff,” he says.

The objective for Allianz is to use ACORD standards tocomplement other messaging mechanisms that already are workingeffectively within the organization. For instance, AllianzAustralia's interface with Ebix's Sunrise Exchange platform, whichconnects broker systems with insurers' rating platforms for onlinequoting, predates any work done with ACORD and performs well today,according to Coles.

“The real area where we've seen the value of standards ingeneral has been in the 'many-to-many' transactionalrelationship–where brokers and insurers have many relationshipsamong themselves,” he says.

“Within that area, there are two objectives organizations aretargeting,” he notes. “One is ease of use–to make it easier forbrokers to gain access to insurers and vice versa. The second is totake cost out of the equation, which is very important in thecommoditized insurance market. So, the market has looked atstandards as an enabler to make it easier for insurers tocommunicate. Credit transactions, basic functions such as providingclaim management and inquiry to distribution partners–those aresensible to do in a common way rather than require brokers to dealwith different systems.”

While there have been some immediate benefits, Allianz sees thevalue of ACORD standards as a long-term proposition. “Inintermediary connectivity, while there are efficiencies to begained by having one rather than two connection points, the realbenefit will come when it's one rather than 22 or 122,” Colespredicts.

Allianz's long-term goal is to automate manual processes,particularly where there is a lot of paper or e-mail currentlyexchanged between underwriters and brokers.

In its standards adoption philosophy, Allianz sees the need tostrike a balance. On one hand, the company does want to operatemore efficiently, share information with brokers, and createstandards around products and processes. On the other hand, Allianzdoesn't want to end up losing market advantage.

“Standards improve the operations of the marketplace, but theycome with a strategic risk, as well,” Coles asserts. “While weachieve positive results by taking costs out, if we try to drivetoo much standardization into a particular product set, there is arisk we remove the potential for differentiation around productsand, ultimately, commoditize the product and only compete on price.We have to be careful through this journey.”

MORE THAN MESSAGING

Messaging is not the only objective behind global adoption ofstandards. “Companies are concerned about ensuring customersatisfaction and reducing attrition, which is driving greater focuson knowing the customer than ever before. As a result, theconversation around having accessible customer data in aconsolidated 360-degree customer profile is a hot topic,”Harris-Ferrante says. “Data needs to be pulled from the sourcesystems, either physically or logically, to create this profile andthen compiled to know the breadth of relationship and productfootprint with that customer. Using standards to manage customerdata will help with these projects.”

Companies are expressing a strong interest in process standards.“If you're building a customer self-service function for change ofaddress, you shouldn't have to build a new process for everyback-end system; it should have commonality and share the sameprocess across all product lines, systems, and channels. If you aremeasuring line-of-business productivity or retention rates, youshould use the same metrics and processes to establish thatmeasurement. Those are the other areas of standards being talkedabout today that are different from a few years ago,” she pointsout.

Business process standards are an area where insurers continueto lag other sectors of financial services, Smallwood observes.“What's interesting is when you look at business processes in areassuch as banking, there are all kinds of measurements and metricsaround everything from ATM machines to mortgage applications, wherethe industry sets standards in terms of time lines along withpublished benchmarks and regulatory oversight. That isn't the casein insurance,” she says.

“Insurers tend to think their internal business processing isunique, but it really isn't,” adds Smallwood. “For the most part,companies have realized receiving an application from an agent isnot unique, and they all benefit from having a standard for that.When they look within other processes–underwriting, claims,financials–they don't look to see what's core or noncore or what'sunique about them that gives them a competitive edge. They need torealize things such as how they perform customer services and howthey define and price their product are what differentiate them–nothow they process their product. Once they understand that, they'llbe willing to help develop standards, adopt standards, and adhereto standards.”

The philosophy that insurance processes–such as coverageverification, policy number lookup, address verification, or claimhistory–can be standardized across products, lines, and geographiesis the operating principle of OMG's Insurance Working Group. UsingOMG's model-driven architecture process, the group is developing astandard reference model for the insurance industry, starting withP&C. Planned deliverables include a glossary of business termsand metadata, a conceptual data model representing businessconcepts, an attributed logical data model, and an XMLrepresentation of those models.

P&C carriers and service providers would utilize theinformation models toward development of business services to“better understand and automate their business processes andfunctions with the objective of continuous innovation and creatinga more agile business environment,” according to OMG. Ultimately,the goal is to reuse or extend those models into domains other thanP&C, such as life and reinsurance.

OMG also is able to capitalize on work done across multipleindustries worldwide that interact with insurance and financialservices. “Because OMG is both global and cross-sector, we are ableto leverage models built in industries such as auto, retail, andhealthcare. For instance, OMG was instrumental in helpinghealthcare develop its HL7 data interchange standard, and we'vebeen discussing how to use the work done and common definitions inHL7 in building out our P&C models,” says Jenkins.

“The idea is, as we move forward, to leverage models in useanywhere and recognize the interconnectivity between industries.P&C insurance is uniquely positioned in this regard, which iswhy OMG is focused on leveraging interconnectivity across sectors,”he adds.

The first deliverable for U.S. P&C is slated for June, afterwhich the Insurance Working Group will determine whether to expandthat standard geographically or by line of business or whether totarget other business processes.

“We will do this in an iterative fashion,” says Jenkins. “Therehas been a lot of interest generated from carriers and serviceproviders outside P&C and outside the U.S. market in what weare doing. We definitely will consider that interest as we moveforward to decide the best direction to go.”

Jenkins sees the work being done on process standards as acomplement to gains that companies such as Penn National have beenable to achieve in data standards, including in an SOA overhaul ofits legacy policy administration systems. It also has gained valueby adopting standards for messaging and data modeling.

“Like many companies, Penn National has been targeting dataintegration, conversion, and mastery programs, including datawarehousing and business intelligence,” he says. “As we have doneso, it became obvious we needed better management of the data. Thatrequires a common data glossary and data modelingrequirements,”
he explains.

“Our operating principle is to use standards wherever we can,”Jenkins stresses. “We want portability among systems.”

GLOBAL CHALLENGES

Interest in standards development and adoption across the globewill remain high, Harris-Ferrante suggests. “Based on our customerconversations, standards for data models, processes, and messagingwill be top of mind for both life and P&C insurers. All threehave an important role in allowing insurance organizations toimprove their transaction processing, expose the processes and dataexternally with minimized risk, and improve risk management forimproved compliance. Those benefits will continue to be understoodamong the forward-looking, aggressive companies focused on customerservice improvement, compliance, and business model transformationover the next five years,” she says.

However, despite the high level of awareness by IT, not everycompany will follow the same adoption path. Harris-Ferrante breaksthe market into three types of companies. “Innovative andleading-edge insurers that are investing in more strategic projectswill be more aggressive in standards adoption, including enterprisegovernance for standards. More mainstream [companies] are applyingstandards tactically for short-term wins or a means to an end, suchas online quoting or issue in P&C, customer self-service, orstraight-through processing for a single product line,” shesays.

However, there is a third group of companies that have failed toimplement standards overall. “Unfortunately, because the majorityof the IT budget goes to keeping the lights on and there is anappetite for short-term projects with fast ROI, there will becompanies that lag the industry significantly in embracingstandards,” continues Harris-Ferrante. “It's a question of howcommitted companies are to transforming their operations at thespeed they will need, either due to external forces of regulatorychange, consumer device use change, or growing and shifting needsof their agent and broker networks.”

Regardless of where in the world a company does business,Smallwood maintains the secret to success in standards adoption isthe same. “IT needs to establish a positive and definitive payback,which will happen as the number of successful implementations withclear benefits increase,” she says. “Once you set up the frameworkfor standards, the cost and time of implementing go down, you beginto be able to plug and play, business sees the benefits, and ITgets the buy-in it needs.”