Can one international data standard really speed up and improve the accuracy of information flows in the insurance industry? asks Beth Grossman
As the insurance world becomes more and more global and interdependent, and business information flows freely back and forth between countries, several questions are repeatedly asked about these data flows. Could they be improved if they used a common data standard? Is it really possible to implement such a standard? Will countries allow it? Will insurance companies follow it? Will reinsurers use it? As implausible as it may seem, given the great diversity of language and regional business processes and needs, the answer to all of these is yes. In fact, international data standards are being implemented in diverse segments of the insurance industry, all around the world. Today.
Development and implementation are being driven by several factors, including the globalisation of the insurance marketplace, the availability of more sophisticated technology, and a need to better manage risks. Still, barriers to wide-scale implementation exist, such as regulatory and territorial issues, language and vocabulary differences, and the pervasiveness of already-developed systems and standards.
What are standards?
To understand what is possible and when, it is first necessary to define what is meant by an 'international' standard. It can be viewed as two quite different animals. One definition would describe it as a universal data standard that all business partners within and between all countries and every line of business can use to exchange information seamlessly.
This all-things-to-all-people solution is not coming soon. That's not to say never, however.
A second definition of 'international' standard refers to those standards that are used specifically for international business transactions. In the insurance space this refers to standards that support cross-border trading and primarily serve the reinsurance business and international insureds and their insurance companies and brokers. Working with its members, ACORD develops and implements these standards for the insurance industry.
And it is with the implementation of this type of international standard that the industry is having success, bringing value to the insurance business in practical, real-life applications, today.
Progress on the first of these types of international standard is being achieved by the United Nations-led initiative, UN/CEFACT, which "seeks to create better data flows through electronic commerce." It involves partnerships with various standards groups internationally, including the International Organization for Standardisation (ISO) ACORD, the Canada-based Centre for Study of Insurance Operations (CSIO), and the European eEG7 group, all within the insurance sector, and scores of others. It is addressing standardisation and the trade facilitation needs of many industry groups, not just insurance. Its goal is to identify common core components being used by every industry in every country and to create from them a set of global core components.
The most basic of the core components might be name, location, date or currency. Armed with these core components, developers can then set about building industry or geographic context back in. So in insurance, for example, context may take the core component 'name' and turn it into 'insured' or 'claimant', depending on the circumstance. The UN/CEFACT initiative will ultimately lay the foundation for greater cross-industry, cross-border data sharing. When ready, businesses can use it as a guide for mapping between the various meanings for similar components defined in different national standards and different industry standards. This is no simple task, since different countries - even those that speak the same language - have different names for the same thing. For instance, 'cover' in the UK is called 'coverage' in the US. It is a far-reaching - almost Herculean - task.
Among the ACORD international standards in use are those that came out of an initiative with Lloyd's and the London company market, and its US-based business partners. ACORD built an XML-enabled spreadsheet that managing general agents (MGAs) in the US can use to place business with Lloyd's syndicates. MGAs collect data using the binding authority standard spreadsheet, which can be easily extracted as an XML data stream by whoever receives it (the Lloyd's syndicate) and pulled into their system to create an extract to send to somebody else's system. It improves accuracy and eliminates the need to re-key data anywhere along the process.
Another example of international standards implementation is in the community of large, international commercial property/casualty accounts. The ACORD exposure reporting standards cover exposure reporting to a specific address/location level, for commercial risks, across all geographies worldwide. It is designed to enable reporting by all parties within the information chain - from insured/risk managers, through intermediaries of all types, to the insurers, and ultimately the reinsurance carriers. The standards allow insurers and reinsurers to gain a far better understanding of their exposure to risk in catastrophe-vulnerable locations.
ACORD EDI and XML standards have been developed for all parts of the reinsurance business cycle, from placement through to accounting, claims and settlement. They are available for both property/casualty and life reinsurance. ACORD's members include 14 of the top 25 reinsurers and implementation is growing rapidly in this community. Lloyd's has recently announced plans to use ACORD's XML standards in the near future for its accounting and settlement operations. Currently, a partnership of US reinsurers and London-based insurers and reinsurers is pilot testing a standard for exchanging electronic documents between data repositories. This standard will allow electronic transmission of 'unstructured' documents (e.g. scanned documents) that can then be stored and easily accessed from a desktop. Implementation is expected to bring a new level of automation and greater access to electronic documentation for business decision-making (i.e. for processing claim advices and risk submissions).
In addition to standards being developed that support international insurance business processes, ACORD standards have also been adopted around the world, in countries such as Canada and South Africa, where the standards meet their needs. This can take the form of broad standards implementation or adoption of ACORD standards in specific lines of business or certain applications within the countries. This has proved a particularly time- and cost-effective proposition for countries without national standards or without XML-based standards, which ACORD was quick to develop.
For instance, The Centre for Study of Insurance Operations (CSIO), ACORD's counterpart for the property/casualty industry in Canada, uses ACORD standards for personal lines in an insurance portal it built. In commercial P/C lines, CSIO is working with ACORD on the data harmonisation effort. The life insurance industry in Canada also has adopted ACORD standards. CLIEDIS, the Canadian Life Insurance EDI Standards group, helps organise Canadian life companies' adoption of these standards and works to respond to jurisdictional requirements, where needed.
Similarly, ACORD's life insurance standards are being implemented among a consortium of insurers in South Africa. The group of eight of the largest life companies created a hub into which they feed all of their information.
South African regulations all but ban competing on information, so the carriers report in to the hub using ACORD standards, and allow agents and advisors to view information in a common format. Segments of the industry in Australia and Asia also use ACORD standards.
In addition, international insurance companies are using ACORD standards for internal systems integration worldwide. A couple of factors are driving this. First, a single standard provides a global company with a common language for all the various branches of that company to talk with each other. And those that must deal with diverse national standards can use this common standard as the framework from which to extract data in one format, then convert it to whatever other form is required.
Furthermore, US, Canadian, continental European and UK-based companies that have implemented ACORD standards for internal integration find as they develop trading partners in the other parts of the world that a natural outgrowth of this activity is for these indigenous partners to similarly adopt the ACORD standards.
The growth - and potential explosion - of insurance processing outsourcing also drives this interest in and adoption of ACORD standards internationally.
Companies are using firms in India for outsourcing support, and may look to other Asian countries as they enter the outsourcing market as well.
The ability to incorporate international standards into work processes will be a competitive advantage for firms looking to enter the outsourcing business.
Building critical mass
While international standards development work has been ongoing for decades, the industry seems poised for an accelerated, or at least sustained, implementation growth. Several factors come into play.
One is a market demand for increased efficiency. Certainly, every participant in the insurance value chain is looking to eliminate redundant processes wherever possible. As part of its work to bolster its position and financial strength, Lloyd's took a look at how it was doing business. The Lloyd's Market Association (LMA) directed that MGAs in the US which wanted to do business with Lloyd's would be required to use a standard XML-enabled spreadsheet for submissions. The LMA has strongly encouraged all MGAs to adopt these household and commercial property binder and open market standards as a matter of priority.
Another way to get critical mass and broad acceptance is by involving a powerful group of solution providers or suppliers and users. That's what sped development of the international exposure reporting standards mentioned previously. ACORD facilitated a collaboration on this standard that included AIR, RMS and EQECAT - three of the largest developers of catastrophe modeling software - as well as insurers, reinsurers, the LMA and all the major brokers.
Regulatory considerations also drive the implementation of international standards. In an era of heightened terrorist and other criminal activity, jurisdictions want a better accounting of cross-border transactions. For instance, the International Association of Insurance Supervisors, representing some 100 jurisdictions, is looking at issues surrounding data globally in the insurance industry. Its particular focus is on things like fraud and anti-money laundering, and how countries can work together helping to protect themselves. The development and deployment of international standards will provide a valuable tool in the fight against these activities.
The insurance industry is poised to reap continued benefits from the implementation of international standards. Work being done by UN/CEFACT will move forward the broad, global adoption of uniform data definitions and standards among a wide cross-section of industries. ACORD is an active participant in the UN/CEFACT effort. As part of one of these vertical groups, ACORD is working with eight jurisdictions on a data dictionary project designed to help define insurance vertical core components. In the meantime, ACORD is facilitating the implementation of standards that are needed now for cross-border trading - practical international standards for use by insurers, reinsurers, customers and suppliers.
In the end, it is perhaps most accurate to describe international standards not as one universal standard, but rather as a network of standards: a network of national, cross-border and cross-industry standards that can be mapped to each other. Over time, as these standards are harmonised and consolidated through the work of UN/CEFACT, ACORD and others, less mapping will be required and data exchange will be smoother, requiring less 'handshaking' between the differing standards. At the same time, continued development and implementation of these standards will strengthen relationships in the market, bolster communication and increase profitability through the whole value chain.
Beth Grossman is Assistant Vice President of Industry Relations at ACORD, a global, non-profit insurance association which facilitates the development and use of standards for the insurance, reinsurance and related financial services industries.