Just about everyone in the insurance arena agrees that having a single set of data standards for transactions is a good thing, but when it comes to how far along we are in developing such standards for the entire industry, experts have conflicting views.

Matt Josefowicz, an analyst for New York-based Celent, sees “a definite strong interest and good participation across the industry in data standards.” In particular, he said he has seen increased awareness among insurance organizations of the potential value of standards within the enterprise.

While the standards discussion has traditionally focused on the benefits for agency-carrier communication, Mr. Josefowicz said the newer internal emphasis has been aided by the rise of SOA–service-oriented architecture.

(SOA is a combination of hardware and software in which many functions can be accessed to perform business processes, independent of their native platform or operating system.)

SOA, he noted, “has made people more aware of the value of standards because most SOA Web services in insurance are based on ACORD XML standards. ACORD has provided a common language for SOA.” He added that while “no one regards insurance standards as fully complete,” the state of standards in the industry is “pretty good.”

Mr. Josefowicz also pointed out that the advancement of data standards in insurance has been hindered to some extent by what he called a “network effect.”

“Insurance organizations look at their competitors and ask, 'Why should I use standards if they don't?'” he explained. “But inside [the enterprise], you need a common language.”

While standards for exterior communication may be helpful to a certain degree to do business with various partners, “the biggest impact and most important thing is internal usage, which gets overlooked a lot,” he added.

He also emphasized the importance of realizing that “a standard doesn't have to be fully complete to be valuable.” Even a standard that is 60- or 70 percent developed, he noted, could help avoid some of the work that needs to be done in an organization.

“It takes time to get everyone to buy in on standards and get them widespread,” according to Mr. Josefowicz. “It's kind of chugging along. It will get there, but in the meantime, [standards] are still creating real business value. I don't know if we'll ever develop standards that meet everybody's needs, unless we all start doing business the same way, but that doesn't need to be the goal.”

In the next two years, he predicted, “more and more companies will move toward SOA as a primary architecture strategy,” thus creating more interest in and commitment to standards. “There's a positive outlook for them to play a strong role in the industry.”

He added that standards adoption is something that is “easy to put off,” because it doesn't solve any problems immediately for an insurance organization.

“But it does enable more efficient solving of other problems from then on,” he pointed out. “It's an infrastructure-type initiative, so it can be difficult to move forward. Business sponsors within an organization don't want to buy infrastructure, they want to buy screen functionality.”

Chuck Johnston, a former insurance industry analyst who is now senior director of insurance industry strategy at Oracle, based in Redwood Shores, Calif., said he is “more upbeat” about the state of standards in insurance than he was a year ago.

While standards development was originally focused on interface, “any programmer can do that,” he asserted. “The harder issue is how to map data dictionaries between organizations. I see ACORD focusing on process management, data dictionaries, and understanding that the SOA wave is important and more of a reality.”

ACORD standards, he added, “are really a good way of putting structure around your SOA. ACORD is far from done, obviously. They have been in the woods for awhile, but now they're actually positioned to deliver value to people who are trying to create real SOA systems.”

“Do I wish they were further along? Yes. Do I wish they were a little more structured? Yes. That is the price we pay for the fact that ACORD standards have to serve a lot of masters,” he said. “At the end of the day, it's all about value for value.”

According to Mr. Johnston, “one of the problems with ACORD has been that vendors treat it as a Good Housekeeping seal of approval. But the real question is how you use standards to achieve business value. If a vendor buys into ACORD standards, as opposed to just doing a PR thing, ultimately the standards enable you to spend less time on integration, because you already have processes that work.”

Mr. Johnston sees the development of standards as “moving beyond” being a checklist item for vendors. “When you start to talk to people who are responsible for application architecture, they want to know what the standards base is,” he explained. “Standards have been a huge part of the process outside of insurance, and now they're starting to seep into our business.”

He added that standards are also important in compliance–both in financial and reporting controls as well as in signing off on business processes as complete, correct and audited. Standards for such processes that are used across companies “let you tell regulators that you have a reliable process,” he said. “There is industry agreement around a business process and an assumption that it has been vetted.”

He concluded that “ACORD has fought the good fight in tough times. Now there is real interest in and appetite for creating agile enterprises. Standards let you communicate across enterprises.”

One critic of progress on standards–or lack thereof–is Judy Johnson, vice president and principal solutions architect for Princeton, N.J.-based Patni Computer Systems. “We are in a state of suspended standards animation,” she said.

“The state of standards right now is pretty much exactly the same as it was a couple of years ago,” she added. “Nothing dramatic has happened. There have been a few things, but not as far as moving anything out to the industry.”

According to Ms. Johnson, the primary focus for the industry “has been around cleaning up processes for the purpose of saving money and cutting expenditures. Standards are the more strategic play, and I just don't see it happening.”

She added that some standards work has been done in committees organized by the Pearl River, N.Y.-based ACORD, “but not too much is coming out of that in terms of actual use and implementation across the industry. I think we're not there yet.”

Ms. Johnson blamed what she sees as the current malaise in standards development on the tendency of insurers to focus on tactical, rather than strategic initiatives.

“It doesn't matter whether it's [business process outsourcing] or legacy modernization–it seems to be all in the same state,” she said. “A real commitment to standards is a strategic move and carriers, no matter what lip service they give to standards, have not found the motivation to do it.”

Instead, she said, insurers care more about improving results in a given quarter. “You could argue that moving to a standards platform would make [such improvements] happen, but it's a much longer-term thing.”

Ms. Johnson said she has seen many requests from insurance organizations for information and proposals concerning business process outsourcing and custom software development, “but there are no significant questions around standards. They're not saying it must be ACORD-compliant–it's not even on the radar screen.

“A few years ago, you saw a demand for ACORD compliance, but you don't see it now,” according to Ms. Johnson. “The total focus is on saving money and business performance improvement. Companies appear to have refocused.”

Ms. Johnson said another reason insurance organizations have been so tactical in their focus is that there is increased pressure in the area of compliance.

“Between [New York Attorney General] Eliot Spitzer, Sarbanes-Oxley [federal reporting mandates] and other pressures, there has been a tremendous amount of money and attention sucked away for compliance,” she explained.

“For this to change, compliance must be less onerous–less of an issue,” she added. “When you have to spend so much money to comply, it's hard to focus on making sure your systems are ACORD-compliant. ACORD isn't levying fines and putting people in jail”–penalties threatened by the federal government if firms do not comply with SOX rules.

Looking ahead, Ms. Johnson said she sees little prospect of any major change in standards development in the near future.

“We're still too deep in the trough of getting processes straight and fixing problems,” she asserted. “I don't see standards rising to the top of the heap in two years. Maybe in three.”

Special Reports /

SOA, Compliance Challenges Push Standards Development Among Insurers

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