Like many other areas of commerce, the life reinsurance sector has resisted the use of standard business processes and electronic information exchange This is all about to change, explains Lloyd Chumbley.

In the early days of electronic data interchange (EDI) in the 1980s, leaders in the sector completed robust standards for treaty and facultative reinsurance as well as claims under the auspices of the Accredited Standards Committee X12 - the membership-based not-for-profit organisation chartered in 1979 by the American National Standards Institute.

Beginning in 2001, ACORD took that work and used it as a launching pad to convert the standards to XML (eXtensible Markup Language). The work for treaty and facultative was completed in late 2002, but while these specifications were delivered, no actual implementations took place. Many parties in the sector developed proprietary solutions that worked on a one-to-many basis or within a certain vendor's or group's constituency. But on an industry-wide basis, the usual barriers stood in the way, including:

- Inertia;

- Additional costs for implementing standards at a company level,

- A perceived lack of control over change (since industry groups developed standards and included competitors in the process); and

- The "if it ain't broke don't fix it" concern.


Most of all, the obstacles were economic: one set of partners in the transaction (the reinsurers) bore most or all of the pain for the problems of inconsistent data exchanged via paper and orally. (This is evident by the maxim "receiver pays for the data," and reinsurers typically were on the receiving end of risk data from primary carriers). There was little incentive for ceding insurers to change their ways to accommodate reinsurers' wishes for faster, better, more efficient data exchange. The net result is that a universal, flexible means of data exchange has so far eluded the reinsurance marketplace.

Today, however, that culture is shifting in the life reinsurance sector. Change is afoot, according to market participants who are leading the effort to create ACORD standards for life reinsurance. Certain factors are contributing to this including surging worldwide demand for reinsurance capacity, which means that reinsurers are better placed to demand change. Also, cedants are developing data-quality initiatives for compliance and financial reporting purposes. This work can be leveraged for data exchange with reinsurers, so adopting standards is not as fearsome a task as it was years ago. Demands to speed up service, reduce costs and improve operating results are leading more market participants to accept the utility of standards. And preferred pricing for primary carriers can be based on the efficiency of how business is transacted. The reality is that transmission of data will not be a competitive advantage for much longer. It will become a commodity and the way business must be done.

Both cedants and reinsurers are being led to standards by the Reinsurance Administration Professionals Association (RAPA), which is pushing XML-based ACORD specifications. Bill Crouch, senior vice president, technology and administration, Generali USA Life Reassurance, is a RAPA member and has bluntly called this the biggest opportunity for the reinsurance industry's back offices. "The absence of a universally accepted standard is the single greatest barrier to reducing the cost of reinsurance administration," he asserted in a recent article. "Data standards address these needs because they facilitate efficient growth, control cost, and provide a measure of flexibility in response to change," he added. The expected benefits are that standards can help the reinsurance industry reduce paper, commit fewer errors during data exchange, and improve information flow. Implementation must be affordable and existing technology software and hardware should not be abandoned.

A reinsurance Rosetta Stone

The Rosetta Stone is an unremarkable chunk of black rock found in Egypt by a French soldier in the time of Napoleon in the late 1790s and early 1800s covered with seemingly indecipherable markings that turned out to be the same information printed in three different languages. Since two of the languages were known, the stone proved ultimately to be the clue that solved one of the world's greatest linguistic mysteries: how to read the third language (an ancient writing left by the Egyptians thousands of years ago). The analogy is that the reinsurance market should participate in the adoption of standards so that it can serve as the translation mechanism for the data "language" of disparate systems.

Crouch argued in his article that the reinsurance industry needs a Rosetta Stone-like hub that should allow each market participant to manage its single connection to the hub with one mapping and one connection. But he noted that like many things it was easier said than done and that making a B2B hub a reality requires a radical departure from the industry's current model. Whether a hub or point to point solutions are implemented, the true Rosetta Stone for the data languages lies in common standards.

RAPA currently has a pilot project underway. Focusing initially on inforce policy status transactions for primary carriers, reinsurers, and retrocessionaires, the pilot project aims to provide a specification for a snapshot of the risk at a point in time. The project, run by RAPA's Data Committee in conjunction with ACORD's Life Reinsurance Focus Group, has created a draft inforce file format and is developing an implementation guide.

Transamerica, as cedant, is pioneering by creating a "flat" file for its reinsurers to test in the first half of 2006; after which it will distribute an XML version to test with partners Canada Life, Scottish Re and Manulife. As a second project, RAPA has already developed an initial transaction file format and will seek reinsurer input. Additionally, RAPA has listed several other potential electronic messages: transaction, billing, policy exhibit, claims, audit, valuation, and securitisation.

ACORD, for its part, is bringing to reinsurance the knowledge gained from other areas of the industry. Experience shows there are five key characteristics of successful implementation of standards. These are:

- Well-defined formats;

- A mandate (from management, partner, industry group or regulation);

- Partnership driven by leadership;

- The benefits are articulated for all participants to understand; and

- Clarity, with a well-defined scope of what the standards can do.


One key learning point is that standards don't fix business processes. Standards work most effectively when developers focus first on business process, and then apply the technology. That is exactly what RAPA is doing, and so far it is serving them well. ACORD's role is to sponsor and facilitate those in the industry who are leading this effort. As in other spheres of the insurance industry, our job is to define the problems, make the business case, and provide draft solutions to test and develop - all within an overall project management template.

If the life reinsurance effort progresses as have other standards efforts, we can aim for the current pilot project to yield successful implementations that provide measurable results for industry participants. Those implementations help prove the business case, and the results drive acceptance.

- Lloyd Chumbley is assistant vice president of standards for ACORD.