Ever since insurers started using computers to do business, there has been a debate over the need for data standards, driven by the notion that such standards are critical to the efficient operation of the industry.

Thanks in large part to efforts by ACORD, many forms in the industry have been standardized, but the elusive Holy Grail remains establishing broader data standards for insurance–the kind seen in banking and other financial services.

However, while establishing data standards would no doubt save time and money, without them the insurance industry continues to be financially robust, even after two of the worst catastrophes in its history: 9/11 and Hurricane Katrina. It was with this scenario in mind that National Underwriter approached a number of seasoned industry observers to ask:

“Why has the industry done so well in spite of the fact that we don't have the data standards everyone insists we need?”

“What do you mean, [we don't have] standards? The industry is literally awash with standards, with our 50-state regulatory system, federally-mandated compliance requirements, industry self-regulatory bodies promulgating business standards, vendors attempting to get the industry to standardize on their platforms, etc.,” said Judy Johnson, a former industry analyst who is now principal solutions architect at Patni Computer Systems Inc. in Jersey City, N.J.

“What we have not had is standards for communicating between members of the value chain–except those that facilitate communication with vendors, and those are still implemented on a fragmented basis,” she continued.

According to Ms. Johnson, the industry has done without communication standards “because a lot of hard-working people have developed manual and technology-assisted work-arounds like fax, e-mail communications and instant messaging to get work done.”

“Why do you think so many people are still employed within the industry? The sneaker-net productivity loss factor is quite high,” she noted.

Chuck Johnston, another former industry analyst who is currently group director of insurance for Redwood Shores, Calif.-based Oracle, agreed that many standards are already widespread in the industry.

“We've had industry standards for years,” he stated, noting that the industry agrees on terminology in many areas, even if there is no universal data standard.

As to why the industry has flourished without complete data standards, he noted that while “standards make things easier, they don't make things possible.”

“It's a clich?, but it's true,” he continued. “The Internet has changed the way insurance companies do business with their customers, partners and producers. Before the introduction of a readily available, open network with adequate security and identity management, generally accepted standards were much less important.”

Mr. Johnston said that vendors such as IVANS, IBM and CSC have imposed some proprietary data standards on the marketplace, while larger insurers have created their own “in-house standards” for dealing with business partners and producers.

“The Internet gives insurers the ability to engage in casual relationships with a much wider range of business partners and producers, but the economics of casual business relationships require industry standard business processes and data interfaces to be cost effective,” he noted.

Most insurers, he contends, “are not leveraging these capabilities today, even though emerging standards are available, due to inflexible business models and lack of distribution leadership vision.”

Indeed, he added, “until insurers understand the opportunity standards provide in radically changing distribution models, investment in standards implementation and new business models will suffer.”

Matt Josefowicz, managing director of the Insurance Group at Boston-based Celent, agreed that “the insurance industry is a very robust industry,” despite the lack of universal data standards.

Mr. Josefowicz characterized standards as “an important tool in the tool box to solve communication problems between disparate systems.” He added, however, “I don't think standards are a life and death issue. People who portray that are unduly apocalyptic.”

According to Mr. Josefowicz, part of the disappointment among observers today regarding standards has to do with unreasonable expectations.

“The issue is that the hype and the level of excitement that people try to create to get attention ends up presenting [standards] in terminology and putting it in a context that makes it impossible to fulfill,” he said.

Mr. Josefowicz said the benefit of standards in insurance has been slow and incremental. “The impact is not visible on a mass-industry scale,” he noted, but it can be seen in the fact that savings realized from standards may show up in a chief information officer's budget.

“It frees up money to do other things,” he explained. “Internally, that's the issue.”

Externally, he added, standards make it easier to communicate. “A lot of people are using standards as the basis of Web services and [service-oriented architecture projects],” he said, noting that many of “the most valuable services are simple data lookups that involve ACORD standards.”

“Standards are real, but it's not the game-changer that some people have reported it to be,” said Mr. Josefowicz. “It's rarely something that's going to show up in the annual report.”

“There's no question that standards are important,” he added, “but is it the kind of thing that gets to the board level? I don't think it's a board-level issue. It's important to [information technology] organization, and that may be critical to the company, but in most cases, it's not number-one on the agenda.”

James Bisker, global insurance industry leader at the Institute for Business Value, part of IBM's Global Business Services, offers a more human-based answer to the standards question.

“I think, just like other things–like pay-as-you-drive and credit scoring–standards are good for the industry, but the medicine tastes bad,” he said. “It tastes bad because it's the business [side of the company] that runs the companies, [while] IT is the machine inside of insurance, and data is our natural resource.”

“We in IT recognize the value of standardizing, but the business side of insurance is loath to admit that the machine that runs them is IT,” he explained. “IT gets it, but the insurance business is not ready to admit that we are an IT business.”

He added, “Standards are critical, but we resist [developing them] because they're not part of our history. It would be more efficient to use standards; surance companies know they should do it.”

Unfortunately, he noted, when insurers have good financial years, “it make us forget that we haven't been as efficient as we could be. We're making more money hand over fist, so it's hard to worry about being more efficient.”

Why don't more companies do the “right thing” when it comes to standards?

“Obviously, it's not a technology problem,” said Mr. Bisker. “[The technology] all works.”

Asked to assess the progress of the standards effort in the insurance industry, Ms. Johnson said: “To a large extent, the current state of standards in the insurance industry remains the same as it was a few years ago. People are still talking about standards, although I remain unconvinced that they are the right people at the right functional levels talking about the right issues to solve the right problems.”

Where standards appear to have been making progress, she said, “it seems to be those used to communicate between insurers and their vendors–either for data or services.”

“I think the ACORD standards initiative has been valuable as a venue where insurance company and vendor representatives can talk and exchange views about issues in a way that is not generally done in the industry,” she added. “I don't think this has been really driving ACORD standards adoption within the corporate firewall, however, despite lip service to the contrary.”

Ms. Johnson contends, “Demands for ACORD standards-compliance to application vendors have been used by insurers as a negotiating ploy around price more than once.”

She also asserted that “technology standards development is far out-pacing the development of industry [line of business]-specific transaction standards to the point where they are increasingly becoming irrelevant.”

“My take is that companies should look at technologies as a way to interoperate and to translate data from the format in which it is received into whatever format is required by all those old legacy systems and processes that are still going strong,” she added.

Meanwhile, Mr. Josefowicz predicted that “standards will continue to be the low key influence that it is now. It will become more of the default on messaging and SOA infrastructure. It will keep building efficiency over less efficient ways of data interchange.”

Special Reports /

As Quest For Data Standards Continues, Insurers Make Do With Patchwork System

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