Are Insurance Standards Still Relevant?

Middleware, XML, Web services should prompt a shift infocus

Some months back, I and several other editors at NationalUnderwriter were having an informal conversation withexecutives from Lloyd's, when I heard something I couldn't quitebelieve.

Julian James, director of worldwide markets for Lloyd's, made aninteresting point about the perceived need for data standards toelectronically enable transactions in the insurance industry. Hepointed out that insurance transactions are already being completedacross proprietary information systems thanks to middleware(software that does the translating on the fly) and advancedtechnologies like XML and Web services that enable such software tobe developed.

In other words, while the industry has been beating its chestabout the need for standards that allow disparate systems tounderstand each other, the software developers have done an end runand enabled the transactions despite the proprietary nature of manycarrier systems.

Judy Johnson, vice president of insurance strategy at Sapiens inResearch Triangle Park, N.C., and a longtime insurance industryanalyst, agrees. “Standards are a good thing, but ultimatelytechnology is making that somewhat of a moot issue,” she stated.“In the medium-to-long term, ACORD standards are largelyirrelevant.”

The lone exception to that idea, she noted, is where theinsurance industry is going into convergence with financialservices.

The financial services industry has “certain standards, andwhere insurance tends to play in that arena, they are going to haveto move toward those standards,” she explained. “Convergence ismore of an issue than the insurance value chain moving itself.” Theoverall financial services industry is “leading in the area ofstandards, and they have a lot more invested.”

As technology continues to evolve, Ms. Johnson continued, theissue of how a message “looks” is going to be less important. “Andit needs to be that way if we are going to move toward thereal-time world,” she said. “Especially for big life and p-c[insurance] companies, the pressure is intense to move intoreal-time to get things done in a reasonable time frame that peoplecan accept.”

However, she asserted, “the caveat is that we do need thetechnology standards that allow us to play in the financialservices world,” where, she pointed out, “a slight delay meanseverybody loses money, but we're not talking about the sameparadigm in insurance. Because of that, the industry has alloweditself to get behind [on standards].”

According to Ms. Johnson, insurers need to focus more onautomation of processes “where things can be configurable on thefly” and on “very loosely coupled systems where you can insert andremove things quickly.” Companies must be flexible enough to do thesame things they have always done but still be able to deal withevents they weren't expecting, she added.

They must also emphasize adaptability that allows them to gobeyond the things they already do, yet still not have to“re-engineer” everything they have done.

As a longtime observer of the technology scene, both within andoutside our industry, I have to admit that, at this point, thedevelopment of data standards does seem like a rather uselesspursuit, especially when the technology community is so far aheadof that effort. Standards that will help bridge the gap betweeninsurance and other financial services are a notable exception.

Ms. Johnson emphasizes, however, that the “content” of data iswhat we do need standards for in insurance, and on thispoint, I fully agree.

Perhaps you recall the story of the Tower of Babel, where somefolks wanted to build a tower that would reach Heaven, but foundthemselves suddenly unable to understand each other's differentlanguagesthus unable to complete the skyscraper. Unfortunately, theinsurance industry is in the same sorry state today, as carriersinsist on assigning different meanings to even the most commonterms, like “claim” or “insured.” This quaint little practice ispart of the reason insurers' information processing systems remainproprietary.

Are ACORD standards, or any standards for insurance, completelyirrelevant? Not if they deal with establishing a baseline for thelanguage we use to talk about policies, claims andtransactions.

In this area, we must reach consensus, not only to makecommunication clearer within our industry, but to make ourselvesunderstandable to the broad array of financial services entitieswith whom we will almost certainly be dealing in the years tocome.

Reproduced from National Underwriter Edition, May 21, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.