The surety bond business has long been plagued by razor-thin profit margins, with many providers satisfied just to break even on the issuance of a new product.Most surety bond issuers therefore understand that success hinges on robust volume. But as providers strive to generate greater sales, they're confronted with a troubling reality: processing surety bonds, which are contractual agreements guaranteeing a certain behavior or fulfillment of an obligation, can be labor-intensive.

Issuing these types of bonds requires a great deal of product specialization. The process also typically warrants an exchange of data between several diverse parties: an issuer, an agent/broker, a buyer and an obligee, the entity that's ultimately covered by the bond. Invariably, these parties must exchange data from disparate operating systems.

In an effort to automate surety-bond processing, SAFECO Surety, an operating unit of Seattle-based SAFECO Corp., recently selected an electronic forms solution designed to ensure swift data capture and data delivery capabilities for its business affiliates. The result: rather than losing money or breaking even on the issuance of a surety bond, SAFECO now either generates a modest profit, or at worst, breaks even.

"We have a library of 2,800 surety bond forms and sell about 600 different product mixes and configurations," reveals Gary Guilland, business analyst for SAFECO Surety. "We needed an electronic forms processing solution that could simplify and speed up the workflow process not only for our internal support people but for our independent producers."

SAFECO Surety found the answer in JetForms, an e-business platform built on Extensible Markup Language (XML) data structures.

With JetForms serving as the springboard, SAFECO Surety launched a program called Surety Online that enables producers to log on to an extranet site, select a customized surety bond template to create a product and then transmit the document, using an XML middleware layer, to all parties involved in the process.

The unit has been able to realize these efficiencies because XML provides a way for parties to exchange not just data but "intelligent" data. Unlike standards that rely upon strict positioning of data fields to supply meaning to the applications that process them, XML represents data in a way that preserves its meaning and makes it possible to carry that meaning forward across applications.

On board with ACORD

The road to XML has been a long and winding one for many insurance carriers that have been bent on improving the manner in which to conduct business with their affiliates.

Recognizing XML as a potential solution to data-exchange inefficiency, Pearl River, N.Y-based ACORD crafted a comprehensive XML vocabulary based on the ACORD ObjX and AL3 standards in late 1999. The first standards were developed for property/casualty insurance lines, and over time standards have been established for life, personal, commercial small business, claims, accounting and surety.

These standards haven't resonated with carriers overnight because many have found them intricate, confusing and seemingly non-applicable to their businesses. And, data-exchange standardization has leveled the playing field for carriers who once placed a major priority in the development of proprietary document translation standards.

But over time, carriers have begun to realize that if they want to fully leverage an emerging operational strategy known as Enterprise Application Integration (EAI), they have to get with the program-from a technology development standpoint (see story on page 26). That translates to the recognition of both proprietary and industrywide data-exchange standards to light the way.

"The good news is that most insurers are now on the road to XML, but the less-than-promising news is that it's a long road," Carl Gersh, manager of e-Insurance Solutions for Sengen, a Mt. Laurel, N.J.-based Internet consulting and development firm, says. "Two years ago, many of them weren't on the road yet."

XML latitude

SAFECO is familiar with this road. Long before the Web came along, SAFECO had begun to streamline the process of making data delivery between its back-end operating systems and an external affiliate much simpler, says Mele Fuller, interface architect for SAFECO Corp.

"Sixteen years ago we actually performed one of the first data downloads from one of our 'monster mainframes' to a PC at the agency level," she says.

Later this year, SAFECO plans to launch a pilot program that utilizes combined proprietary and ACORD-supported XML data translations to conduct business in real-time for both business owners' and personal auto policies.

The intricate nature of the surety bond business served as an impetus for SAFECO Surety to invest in the JetForms solution in 2001. "The manual processing of surety bonds can undermine an operation," Guilland says. "Compounding matters was an acquisition that SAFECO made where, within the sale, our unit inherited a small surety bond operation that had a miscellaneous product line that was vastly different from ours."

SAFECO selected JetForms, Guilland states, for its ability to present, capture, move and output XML data in a structured and personalized format. "Using any browser, an agent can log onto the extranet and select the data fields and a specific template to create an surety bond application, using the middleware layer to link into our back-end legacy application," says Guilland.

"The system allows them to access the most current rates and then route the document to other parties. The key is they only have to input data once, avoiding errors and other redundancies."

JetForms is making a dramatic impact on SAFECO Surety's bottom line. "We've been able to compress what used to be a two to three day process of mailing a bond form out to an agent down to five minutes," Guilland explains.

Similar to SAFECO, St. Paul, Minn.-based The St. Paul Cos. recognized the need to develop common data standards with its business partners.

One standard

"We realized that to pursue future partnerships, we needed one XML standard for platform integration purposes," says Thomas Trueschler, St. Paul's director, agency interface, small commercial business.

"Now we can say to a potential partner, 'here's our business rules-all you have to do is follow ACORD's XML standards for small business and it's a simple integration process.'"

The St. Paul has a stable of 3,000 independent agents who sell business owners policies in what amounts to a $1 billion annual business based on net premiums. "Over the past year, we've received an inordinate volume of requests from producers that wanted us to bring our automation competencies up to the next level," Trueschler notes.

The St. Paul established a real-time Web-based program for agents in mid-2000. Branded SPCQuote, the program enables agents to obtain real-time quotes only from St. Paul's rating engines. Currently, 70% of all quoting activity through the company is carried out via this proprietary system.

When agents activate the system, they can do so three ways: through development of their own Web portal system, via agency management system or third-party Web platform.

"The assurance of rate accuracy is one of the key benefits to using a technology like XML," Trueschler states. "Because quotes for small-business coverage can be posted on the Web, it ensures that an agent will be viewing the most current rates. In the past, we relied on rating disks, which continually had to be updated to reflect product changes. Now, it's instantaneous and there's no more paper applications to contend with."

The key to optimal interoperability, industry experts say, is the establishment of both industry and proprietary standards. "It behooves carriers and vendors to adhere to ACORD as a foundation standard, but as they establish ACORD as a foundation, they should develop proprietary standards to augment ACORD," says Gersh of Sengen. "You can't standardize everything to the Nth degree."

Promoting standardization can lead to relinquishing a measure of autonomy. For instance, The St. Paul's SPCQuote platform best serves the carrier because it's proprietary.

But most carriers now realize they must offer agents not only a proprietary interface, but one that will enable them to accumulate multiple quotes upon a single desktop entry.

As a result, in tandem with SPCQuote, The St. Paul is offering independent agents direct access to Transformation Station, a real-time managed data exchange designed by Greenwich, Conn.-based IVANS, a provider of data networking and e-commerce solutions and services.

Transformation Station provides a gateway to a single, secure connection point for real-time, immediate and batch mailbox delivery that's accessed from the public Internet, private network or Virtual Private Network (VPN). In-network translation enables applications using dissimilar data formats to communicate with each other through the implementation of various application-bridging tools.

Go the extra mile

The continued evolution of XML middleware technology has produced a great degree of debate surrounding the role currently XML plays, and could eventually play, within a carrier's operations.

With the XML groundwork laid in 2001, experts say the next 18 months to 24 months will see financial service providers deploying XML skewed toward internal-based initiatives-getting their own houses in order, so to speak. "XML will be used internally to gain efficiencies, cut costs and gain a competitive advantage," says Sarah Ablett, research analyst for Newton, Mass.-based Meridien Research.

SAFECO's Fuller agrees with this assessment. "We have placed an emphasis on using XML technology internally more than externally," she says. "Implementing an XML platform internally first makes it easier to reformat data translations to be executed externally later."

But several industry players insist that XML development must chart new courses.

"We get asked by customers if XML standards cover everything they need to cover, and unfortunately they don't," says Ronald Young, general manager, insurance group at San Mateo-based Siebel Systems Inc. "ACORD has addressed transaction-based XML very thoroughly, but it isn't as far along for areas such as customer relationship management or even sales lead generations.

"ACORD standards are very policy-centric," Young adds. "But there is a lot flowing around the world other than policy administration. XML data streams are not being leveraged to collect more robust information on a customer."

Most industry observers agree that the potential provided by XML is immense. However, "one should never underestimate the potential for politics, emotions and profits to stand in the way of progress," says Meridien's Ablett.

"With so many language standards initiatives attempting to solve the same problems and so many emotions and politics tied up in their success or failure, (XML) consolidation and convergence will obviously not happen overnight. Institutions should be prepared for a bumpy road ahead."

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