This year, the U.S. insurance industry will spend an estimated $6.3 billion on new information technology projects. Of that amount, the industry could save $250 million or 23% of the $1.45 billion portion it spends on staff and consultants to integrate internal and external information technology systems.The magic bullet to these dramatic savings is ACORD XML, according to a report by Boston-based Celent Communications Inc. Carriers surveyed by Celent either expected to or had actually achieved integration efficiencies of 20% to 30% when using ACORD XML standards. A few reported efficiencies on some projects of as much as 80%.

Overall, a 20% to 30% reduction in system integration costs would reduce IT integration expenditures from 23% of new-project budgets to between 15% to 20%. If embraced by the entire U.S. insurance industry, the savings would reach an estimated $250 million annually, according to Celent, a research and advisory firm for financial institutions.

XML's advantages

ACORD XML has two advantages over previous computer information languages. First, it is programming language- and platform-independent. This means it can be used to link disparate applications and infrastructures. Secondly, it is text-based, not binary language-based, making it easier to use and debug.

Only a handful of carriers are cashing in on the cost and time savings that can result from the use of the ACORD XML standards. The initial standards came out in 2001 and were updated with version 1.1.0 this past spring.

Carriers aren't taking advantage because "the standards are new and the insurance industry in general is risk averse," says Matthew Josefowicz, senior analyst and report author. "They move slowly on the technology side. A lot of carriers are afraid to be the first mover. They want to see others do it and have success with it," he adds.

The standards, developed by the Association for Cooperative Research and Development, Pearl River, N.Y., are based on rules and guidelines that provide a common framework for communication between systems.

Even though vanilla XML enables disparate IT systems to speak to one another, they can't understand each other unless they are using a common vocabulary. ACORD XML standards provide a common vocabulary of data and transaction types enabling insurers to dramatically reduce the difficulty and expense of data interchange and systems interoperability, and cut systems integration costs significantly.

For example, the ACORD standards enable easier integration when passing data between a legacy policy administration system and a customer relationship management system. That's because the standards eliminate the need to "sit down with the two systems and figure out how to create a translator and a link," says Josefowicz.

"It relieves the carrier of having to do one-to-one systems' integration. If all of a carrier's systems speak the same language, then any new systems that are integrated only have to learn one language as opposed to the individual languages," he points out.

Actual usage of ACORD XML standards in production-level technology projects is still in the early adoption stages. Experts put the number at about 100.

"Integrating data standards into your infrastructure is an evolutionary process rather than a revolutionary process," says Gregory A. Maciag, CEO and president of ACORD. "Implementation begins with a core group of larger, more progressive organizations followed by those that ultimately need to comply or die. Internal priorities, staff skills and budgets can be factors as well. It also involves people and their appetite to change," Maciag adds.

Celent predicts that the majority of new insurance IT projects that involve XML will be based on ACORD XML standards within three or four years.

Why be first?

Why be a first mover? "The savings start sooner," Josefowicz says. "Because the main cost of adoption is converting or building translators for internal systems, carriers that wait will not save money on the initial conversion. If anything, the initial conversion is likely to be more expensive since the proprietary systems will only be more entrenched and individually evolved," he adds.

Larger carriers, such as New York-based MetLife Inc. "are putting these standards at the center of everything they do, and that will act as the engine for the progression," Josefowicz says. Long term, "it makes integration internally from system to system and integration and data sharing with partners faster, easier and cheaper."

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