Unlike previous industry attempts to standardize data exchanges between carriers, agents and third-party partners, it appears that XML is the real deal. Still, the industry has a long way to go before support for ACORD XML turns into widespread adoption.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.

After a slow start, support for the ACORD XML standards is now widespread across the industry. Nearly 87% of life carriers and 94% of P&C carriers are investigating and eventually plan to adopt ACORD XML standards in some fashion, according to a survey conducted last year by Stamford, Conn.-based Gartner Research Inc.

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."

Legacy patchworks

While companies wrestle with establishing external links, ACORD XML standards are proving to be a cost effective interface between patchworks of legacy systems that have been difficult to access or extend to newer environments.

Because many insurers are reluctant to tinker directly with these systems, adding an XML-based abstraction layer provides a way to harvest and convert data from these systems for the newer generation of Web-based applications.

"Another word for 'legacy systems' is 'revenue-generating systems,' " says Jamie Bisker, director of insurance research for TowerGroup, Needham, Mass. "Getting the data they contain and exposing it to the modern world-to Web servers, business intelligence tools, and executive dashboards-is important."

As a result, most carriers are likely to gradually replace legacy systems on an incremental, component-by-component basis. XML interfaces help companies avoid touching original code and business logic on mainframes or other large systems.

Indeed, some carriers are currently looking at ACORD XML as an enabler for internal system-to-system interfaces, which could potentially save millions of dollars in system integration costs. One carrier, American National Insurance Co., Galveston, Texas, is deploying XML not only to link data between its agents and subsidiaries, but also internally to link its various legacy systems, some of which data back more than a decade.

The company has already successfully applied ACORD XML to its Garden State Life unit to flow application data between agents and the carrier.

Now, "instead of hard-coding interfaces to flow information between different systems, people can use an XML interface," says Carol Chapman, senior staff analyst for American National, and co-chair of ACORD's Data Standards Committee. "When there's a modification in one system, you don't have to change everything."

The Hartford's internal ACORD advisory group also recently launched an effort to incorporate ACORD as part of its overall enterprise data strategy, says Gary Knoble, vice president for The Hartford Financial Service Group, Hartford, Conn.

The company is leveraging experience with its external interfaces for internal data integration. For example, the company has already been in the forefront of ACORD XML deployments for processing property, auto and workers' compensation data.

"We're recognizing the ACORD standard not only for external communications between systems, but also for internal communications between systems," Knoble states.

As part of the first phase of this initiative, The Hartford is putting together an education package to urge the company's developers and end-users to adopt ACORD standards "for any new implementation that involves communicating data between systems," he relates.

"We're not telling them what to do inside the legacy systems. We're telling them that when they accept data from another system, this is how they're going to get that data, and when they pass data to another system, this is how they're going to pass it on."

By surfacing legacy data that may have been trapped within stove-pipe systems, XML enables a level of transparency that would have been unthinkable a few years ago. Recent regulatory and legal initiatives such as Gramm-Leach Bliley and Sarbanes-Oxley at the federal level in the United States, Basel II in Europe, as well as various state mandates on insurance companies, may propel adoption of XML within the industry, some observers predict.

"Sarbanes-Oxley means that no one can claim ignorance about their data," says American National's Chapman. "You have to be able to show data congruence at any time to anyone who needs to see it. If you have hard-coded interfaces that make rules or make changes in the middle, then you're actually in violation (of the law)."

Web services

On the cutting edge of ACORD, there is now much discussion on adapting the SOAP framework for ACORD XML messaging. SOAP, or Simple Online Access Protocol, serves as the "wrapper" in which XML messages are delivered.

ACORD's Chumbley admits that at this point, the discussion is fairly technical. "Businesspeople want to transmit the message; they don't really care how it gets there," he says. "But we've got some major discussions going on to be able to transmit these messages in real time, in a Web service environment, using SOAP."

Ultimately, ACORD XML provides the foundation for the industry's push into full-fledged Web services, says TowerGroup's Bisker.

"The real power here with what XML means to the insurance industry, and what ACORD is helping to facilitate, is Web services," he says.

"Web services is a genuine advance in technological capability for the insurance industry. It's not only a way to automate workflows, but a way to empower those automated workflows with decisioning capabilities and flexibility, as opposed to relying on people to manually make decisions, expose capabilities, or to deny certain processes. For the first time in 40 years, Web services is delivering on the promise of computer-based automation, and ACORD and XML are making that a reality."

OneBeacon Claims XML Savings

For many carriers, the savings from standardizing data transfer to reduce paperwork represents a quickly demonstrable ROI stemming from XML-based standardization.

"The insurance industry has the most to gain from XML because of the paper intensity companies deal in every day," says Lloyd Chumbley, assistant vice president of standards for ACORD. "A lot of industries have already been slowly ridding themselves of some of that congestion. But insurance companies have not done this to date."

Boston-based OneBeacon Insurance Group, for one, estimates that it is saving up to $535,000 a year from a newly implemented XML-enabled automated claims processing solution. Most of the savings is calculated based on administrative time no longer spent re-keying or manually routing documents around the company.

Previously, OneBeacon's agents would fax claims forms to OneBeacon's offices, where they would be re-keyed into the company's mainframe-based system, explains Dave Ostermeyer, assistant vice president of IT claims for OneBeacon. "They faxed it in to us, and we would manually process it and route it to the individual working on the specific claim."

Areas were XML can be deployed effectively include services that require interfaces with outside parties, such as auto repair dispatch, fraud detection, agency or producer integration, medical bill pricing, care management, state reporting, and vendor management, says Matt Foster, senior manager for the insurance industry services practice of Accenture.

"These are good examples of where carriers are breaking down their four walls and looking to outside service providers to provide business value," he says.

Many companies are moving to a hybrid of older paper-based approaches and new XML-enabled interfaces. OneBeacon, for example, chose a third-party firm, EasyLink Services Corp., to convert its high monthly volume of faxed ACORD first notice of loss forms into ACORD XML data. Forms containing about 140 fields of information are faxed to EasyLink, where they are read into an OCR system and converted to ACORD XML and forwarded to OneBeacon's claims system.

"We bring that XML data in-with image attached-and load it into our claims database, and attach it," Ostermeyer explains.

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