ACORD XML Approaches Critical Mass
Insurance Networking News, May 2004
ACORD's XML specifications-covering property/casualty, life, and reinsurance- were designed for transferring data across firewalls, but some carriers are exploring use of the standards as a cost-effective internal integration tool for extracting data from legacy systems. In addition to controlling costs and opening access, such internal data integration capabilities may also help companies meet growing demands from regulators for increased accountability in internal operations.
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And, a study of 20 major U.S. carriers issued last year by Boston-based Celent Communications found that 63% of respondents had live production systems using ACORD XML standards, while a majority of the remaining firms had pilot programs in place.
Experts note that the insurance industry is surpassing other industry groups in agreeing on and adopting data standards.
"We're past the 'why,' now we're just working on the 'how,'" says Lloyd Chumbley, assistant vice president of standards for ACORD, Pearl River, N.Y.
"Two or three years ago, people were struggling with understanding the XML structures. Now, they've moved on to working on communicating messages over the Web and the protocols for getting data out to partners and customers."
Chicken or the egg?
Although XML is proving its mettle in enabling data transfer between applications across networks, insurance executives need to determine which data should be XML-enabled, and who will do the heavy lifting-among agents, brokers, carriers and third-party partners-to see these implementations through.
Developing a trading partner relationship in which XML is the agreed-upon standard is not always an automatic process, industry experts say. At a time when many companies are still tightly watching their IT budgets, early-adopting companies undertake some risk as they put out the initial efforts and assume the initial costs to develop an XML-based linkage.
"It's a chicken or the egg principal," says Sean Kelly, a managing consultant with Blackwell Consulting, Chicago, which recently completed a major ACORD XML rollout between an insurance broker and two carriers.
"Carriers and brokers are asking 'who is going to adopt this first. 'Who is going to be the leader to build an ACORD XML interface?' The risk is the first one out there is going to have to find a partner to do it with to try to get some type of ROI."
Early adopters sometimes learned this lesson the hard way. For example, InsureHiTech Inc., a Princeton, N.J.-based insurance broker to the high-tech industry, was an early implementer of ACORD XML. In 2000, it developed an XML-based forms submission system to bid on corporate officers and directors liability policies. However, the system had to be put temporarily "on hiatus," relates Richard Maloy, CEO of InsureHiTech.
"We built an agency management system that takes XML transfers from our database directly into the legacy back engines of insurance carriers. But it was too expensive for the carriers to keep up with the edits for the data. They had to have a full IT team to monitor those edits and make sure that it was all going through the pipe."
Since the dollar-volume of transactions was relatively low in comparison with more commodity lines of business, larger carriers could not justify expending resources to support the interfaces, Maloy explains.
"If we had $1 billion of premiums going through that pipe, it would make a lot of sense. However, if you only have $100,000 going through, it doesn't make any sense for carriers to justify the expense," he says.
A major portion of the costs associated with building and maintaining XML interfaces goes to technical staffing. Craig Weber, an analyst with Celent Communications, recently interviewed a number of carriers on data integration plans with agency management systems. He notes that finding the skills to build and maintain XML translators can be difficult.
"The skills required to build and maintain XML translators differ from the skills required to integrate legacy systems and keep them running," he writes in a recent report. "A focused training or hiring effort is necessary to create and maintain those skills in-house."
Carriers' XML efforts also compete for resources with other projects within various IT and channel operations. "Carriers often have internal priorities, and a lot of systems to maintain," says Matt Foster, senior manager for the insurance industry services practice at Bermuda-based Accenture.
"Adopting standards on top of existing feeds that have been working for years often cannot be justified, especially when vendor providers step up and offer to adopt it in the existing format.
"There needs to be some level of critical mass before take up is widespread," Foster adds. "More vendors and more insurance companies need to make data available in standard formats, so it can be reused across additional integration points. We just haven't seen that critical mass to date."
Celent estimates that about one-quarter of life insurance carriers and one-third of property/casualty carriers make standardized data feeds available to agency management systems.
Some agencies and brokers have taken the initiative to enable XML data submissions to multiple carriers, but have found the task often extends beyond the bounds of the original project scope.
"When you're building a large implementation on your side of the fence, you have to manage the effort on the other side of the fence too, in some respect," says Blackwell's Kelly. "You have to determine which side is responsible for fixing certain errors and debugging."
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