Gorilla WARFARE?

While a growing group of larger insurers are applying ACORD XML for internal and external purposes, some industry insiders believe it'll take an 800-pound gorilla to make standards a standard practice in insurance IT.

by Robert Regis Hyle

Internal communications can be a good thing or not, depending on whos doing the talking. For example, the prevailing opinion about people who talk to themselves is that they have a few problemsparticularly if someone answers. But in the world of insurance, internal communications have a different meaning. With carriers collecting data from multiple sources, internal users have to be able to communicate with co-workers in a language everyone can understand. The same holds true for communication with external customers and partners, although insurers have found the answer to that problem is a tad more complicated.

That is why ACORD XML has become a growing part of the insurance landscape. Actually, to this point, the ACORD XML standard is the only one that exists for property/casualty insurance in the United States, says Rich Maynard, director, personal lines application architecture services for The Hartford. Standards are evolving, though, and in the slow-moving insurance arena, the evolution is going to take some time. It took a decade for the banking industrys IXF data standards to reach maturity, Maynard points out, and the ACORD XML standards are less than four years old. Mele Lynn Fuller, interface architect with Safeco, agrees the insurance industry has to be patient with the direction standards are headed. You have to give [carriers] time and give some of the smaller players time to catch up, she says. Thats a mixture of money and resources.

Bruce Wilkinson, CIO of Citizens Property Insurance Corp., with more than $1 billion in premium, says there has been an awful lot of talk about standards, but the number of people discussing them is large vs. the number of insurers actually receiving results from them. Were focused here almost fanatically toward the business result, says Wilkinson. Technology for the sake of technology is interesting, but if it doesnt produce something you can see on a balance sheet or on an income statement, then we call it research and development.

Balance Tipping

Larger insurers are showing an increasing amount of interest in the ACORD XML standards, according to Matt Josefowicz, analyst for Celent Communications. A recent survey by the research firm disclosed 65 percent of the top 20 property/casualty insurance carriers in the U.S. have implemented at least one ACORD XML project. The industry moves slowly in general, he says. At this point, the question is why not use standards as opposed to why use them.
When insurers discuss ACORD XML, the dialogue usually relates to how the standards can be used with external partners, but the standards also have shown value internally for insurance carriers. Standards have been positioned historically as about communicating between different partners in the value chain, says Josefowicz. When you have an external communication standard, it is hard to see why you should adopt it if all your trading partners havent done so yet. Its a classic network problem: The networks not valuable until you have lots of participants.

At the same time, however, Josefowicz believes there has been a shift within the last year, particularly at larger companies, to make the investment in ACORD XML as a means of exchanging information among internal systems as well as reconciling the different data standards among the various siloed parts of a single enterprise. Companies know they will get value from investing in the standards internally because everyone in the enterprise will be using them. It can solve a lot of discrepancies between different data standards historically used by different pieces of the enterprise, he maintains. In those cases, you dont have to wait for your data partners to come up to speed. You can start getting the benefits immediately in terms of uniting data and creating access to data from within different parts of the enterprise. This also paves the way for the carrier to be a step ahead of others when adoption eventually hits industrywide.
The Hartford is using ACORD XML in its internal messaging suite, Maynard reports. Rather than building it all ourselves, we felt we might as well leverage an emerging standard thats out there and utilize it for all our internal message structures, he says.

While XML may have been initially developed to communicate externally, Safeco found it worked particularly well as the carrier moved into the server world from its IBM mainframe environment. XML was an excellent way to share data and format data in the PC environment, says Fuller. XML-based data is self-describing. I dont think you can overestimate how much of an advantage there is to self-described data. If you hand somebody an X12 data file or a file we pull off the mainframe, you almost need a description paper next to you to define what the data means. There is no way, short of having memorized it over years, to understand what this data means. I can hand anybody who reads English an XML file, and that party can read it. It helps in design work. It helps tremendously in trouble-shooting any kind of problem. You dont need a programmer to read the file. A brand-new business analyst can read data [in XML].

Better and Better

Fuller was involved with the initial creation of the ACORD XML standards and is proud of the work involved. We did a good job on Version 1.0, but once we got a year and a half into it, we had 600 to 700 messages, she says. Volunteers from the ACORD membership currently are improving the architecture to cut that number to a quarter of what they had before, she says.

One of the development teams goals is to make sure the business data is organized in such a way users can change technologies readily. This is easier in theory than practice, because there always is a relationship between the technology and how you form your data in your messages, Fuller says. Were trying to keep it as open as we can so if schemas arent the right technology in five years, we can roll the data standards into the next technology.

The Hartford worries about the new versions of the standard that keep coming, Maynard says. Were wrestling how we are going to controlsetting it as an internal standardthe proliferation of [the standard] across all the applications and make sure we are using a standard implementation of it, as well.

ACORD is working on the release of Version 2.0, and that will break with tradition from earlier releases that had backward compatibility, according to Fuller. We assumed when we first developed the ACORD XML standard we probably would have to break backward compatibility every one-and-a-half to two years because of new requirements and increased knowledge, says Fuller. New data requirements often are a reason to break compatibility. We had hoped originally not to make quite so many changes, but we find some fairly significant architectural changes will greatly improve the ability to implement the standard, she says.

Finding a Reason

The new version might spur usage, Fuller asserts. Carriers looking to do business internationally, she adds, will have an interest as they seek ways to communicate with partners theyve never communicated with before. As we streamline the standard and make it more logical, we open ourselves up to being much more attractive to implementation by new partners, she says.

Many companies will stay with one of the earlier visions, though. Its going to take an 800-pound gorilla to move many of us to Version 2.0, says Fuller. And who could that 800-pound gorilla be? A major business partner, she says, citing Marsh as an example for carriers or St. Paul Travelers as an example for agencies and vendors.

When a major business partner implements a standard, we are motivated to make a concurrent move. It makes good business sense, says Fuller. It doesnt make any sense to move from Version 1 to Version 2 until you have to. Carriers will continue to operate on Version 1 even if they implement Version 2 because not all partners will be compatible with the newer version at the same time. You never turn off the old standard, says Fuller. I can see in the future where an insurance carrier will be transmitting certain lines of business and certain transactions with Version 1 and the others with Version 2.

Easy Does It

The overriding aspect of dealings between carriers and agents is ease of doing business. Carriers that utilize independent agents know they cannot demand much from agencies unless the carriers themselves are willing to pay for upgrades. Fuller points out such an event would be a rarity. Even as big a carrier as The Hartford knows it cant force anything down an agencys throat. Were at the mercy of our partners, says Maynard. Most of The Hartfords agency partners utilize one of the two major agency management system vendorsApplied or AMS. I dont believe its any secret, [Applied and AMS] would prefer we use their standard as opposed to the ACORD standard, he says. Applieds connection with IVANS and Transformation Station produces a form of the ACORD XML message carriers can use, but the fact the two sides have been unable to agree on a specific standard doesnt eliminate the need the agencies and the carriers have for each other.

One of the things we need to do is make sure we are as easy to do business with as possible, says Maynard. If that means the Applieds and the AMSes are not going to be sending us ACORD XML, but rather their own flavor, and we standardize on ACORD XML inside, then we need to figure out a way to translate [data] seamlessly from what [agency management systems] are sending us to our version of the ACORD XML standard.

Maynard knows smaller carriers and smaller independent agencies are unlikely to send data to the other side in any type of standard format. With smaller independents, were just happy when they send us a fax, jokes Maynard. Some smaller agency management systems produce a flavor of XML, according to Maynard, but The Hartford still has to translate what is sent into a flavor the carrier can digest. That can be frustrating, but carriers such as The Hartford understand it all will take time. The adoption of the standard across the industry is not at a level where I think we would like it to be, but with any standard thats only a couple of years old, what do you expect? asks Maynard.

He says he often is asked why insurers cant do acquisitions like banks do. One of the reasons is the banks have the IFX standard and everyone communicates that standard the same way, so its a lot easier for them to perform transactions, he says. In the case of property/casualty insurance, the ACORD XML standard is emerging, but there are lots of interpretations left up to the individual insurance company. So when we put our proprietary twist on it, you begin to dilute the capability of the companies to have a fluid transaction set going among them all. That [IFX] standard may be 10 or 11 years mature. ACORD XML is only a couple of years mature. When were sitting here eight years from now, we may say ACORD standard is the best thing since sliced bread and allowed us to standardize the property/casualty industry, but I think were at least five years away from that.

Wilkinson says his company doesnt tip its scales toward one vendor simply because it offers data in an XML format. Most of the time, the selected vendor we choose is delivering us the best business result, he says. If we had three vendors delivering us the exact same business result and one of those used an XML interface and the others used some kind of proprietary approach, that would give the [XML] vendor the advantage, but we just havent found that [scenario] to be the case yet. We look at the business result first and then what its going to take to support it.

Survival or Strategy

Kimberly Harris, research director for Gartner, believes insurers have to classify their technology strategies between what they have to do to survive and the tools that are considered more strategic and are just nice to have. ACORD XML has been considered more strategic, she asserts, but it is becoming more mainstream. A lot of companies that werent looking at it before are using it or adopting it in different forms, she says. Its almost reaching mainstream mass adoption.

Josefowicz adds the trend in insurance is to move toward using service-oriented architecture and internal Web services, and these depend on XML. So as long as youre moving to XML that way, you might as well use standards-based XML, he says, as opposed to investing in and creating your own data standards, which arent going to be leverageable when you talk about moving those communications beyond your firewall.
There is value in using ACORD XML internally, he says, and it is easier for carriers to justify the investment internally. You can get the return without depending on your trading partners to be enhancing the standards, he points out.

Smaller carriers likely will continue with a wait-and-see posture toward ACORD XML, Josefowicz notes. With fewer large-scale integration issues, smaller insurers are less likely to invest in service-oriented architecture. [Smaller insurers] dont have quite the systems integration problems, typically, because they dont have large or diverse architecture in most cases, he says.
Harris believes ACORD still has a long way to go in rounding out its standards. Clearly the end-to-end insurance process is not fulfilled yet, she says. There are gaps and certain areas that are more complete in covering every functionality. More vendors need to become certified, not just say they are ACORD compliant, which is the buzzword now but really doesnt mean a lot. The certification to be able to support the transaction is really whats important. Companies that are using the standards need to start using them on wide-scale projects so they can use them for both internal and external projects.

Wilkinson still is not sold the industry will come around to any single standard. In this industry, you have to realize time kills a lot of technology, he says. By the time XML is inside the insurance industry and reaches a peak of acceptance so that it becomes a commodity, something else may come along that blows that [XML] technology away.