Historically, standards were developed to help the industry bring order to myriad proprietary formats, and to govern interactions between a carrier and an entity outside its walls, such as a producer or regulator. Now, a new breed of standards is emerging that focuses on data transactions made inside a carrier's walls, and on the overall architecture of systems. Ample proof of this evolution can be found in Pearl River, N.Y., where the Association for Cooperative Operations Research and Development (ACORD) has been crafting standards for three decades. Long-standing ACORD exchange formats AL3 and ACORD XML concentrated on helping insurers and producers relate to business-to-business.
Standards are now becoming increasingly internalized. XML-based standards have grown from an efficiency play from the front office to back office, to the de facto interchange between systems and channels. Recently, in addition to its forms and data exchange offerings to the industry, the association has been working on the ACORD Framework, a series of five interrelated models (see chart) that can be used to develop consistent standards within an insurer's walls.
This foray into architectural issues only became feasible in recent years, as many of the disagreements surrounding the existing standards receded, says Lloyd Chumbley, VP of ACORD. With the major technology questions answered, it's now about the implementation and advocacy of standards. While the development of an ACORD standard was once protracted, the association can now produce one in as little as two or three weeks.
"With the architecture in place, we can turn around a standard pretty quickly," Chumbley says. "The development of standards has kind of become a factory. The reason for that is because XML and Web services technologies have matured. Now the debate is simply, 'Do you want that content or not?'"
Indeed, any discussion of standards must be viewed through the prism of technology. Where standards once reflected the paper and flat files used by insurers, they now must conform to an age in which service-oriented architectures and Web services have become prevalent.
Where, at one time, standards were primarily about commonality within a system, now they increasingly concern the interface between systems. By driving deeper into the enterprise, the ACORD Framework reflects this new, services-based reality. What's more, given its comprehensiveness, the Framework also can precede and catalyze the adoption of technologies rather than just conform to them.
To craft the Framework, ACORD has received input from both its carrier members and the vendor community. For example, in December 2009, IBM contributed its Business Object Model from their Insurance Application Architecture (IAA) to the Framework.
Chumbley says one the association's primary goals is to ease implementation issues through the development of new tool sets. "We've made huge strides this year, and we'll be moving even further than that during the remainder of the year with updates to the data models, and a revised information model," Chumbley says.
Spurring Adoption
Even the best-devised standard is meaningless for want of adoption. But why should insurers adopt standards? There are solid business reasons for doing so. Agents who had to deal with multiple carriers were among the earliest adopters of standards. Carriers seeking their business often followed suit. In addition to greater ease of doing business, standards also promise lower transaction costs and better data quality.
Competitive pressures also enter the picture. Traditional writers are competing with a cadre of direct writers built on standards who reap the benefits in terms of speed, cost and efficiency.
Nonetheless, some equally compelling reasons work against standards adoption. Perceived up-front costs may spur some to delay, or opt not to adhere to a standard. An insurer was rightfully reluctant to jettison a highly functional, if proprietary process, just to adhere to a standard. This may especially be true if the process is believed to be the source of differentiation in the market. Yet, while many are loathe to admit, the typical business processes performed by insurers are largely similar. Moreover, flexibility in standards enable adherents to tweak according to their business need.
Complexity is another reason often cited for lack of standards adoption. Martina Conlon, principal in the insurance practice at New York-based Novarica, says these concerns are unsubstantiated. "A lot of people don't understand what ACORD has to offer," she says. "They probably think it is more complex than it is really is."
Banding Together
Also, different lines of business tend to differ in their rate of standards adoption. For example, property/casualty insurers have traditionally been quicker to adopt standards than their life and health counterparts, notes Ki Nam Kim, VP of Boston-based Massachusetts Mutual Life Insurance Co.
"Because of the nature of the P&C business, they have to focus on efficiency," Kim says.
Yet, with the investment income life insurers long enjoyed eviscerated by the financial crisis, efficiency and the standards that beget them are receiving renewed attention. Other, more formal efforts to increase the adoption of standards by life and health insurers also are afoot. For example, the Plug and Play Consortium is made up of insurers interested in making ACORD standards "plug and play" ready. Member companies include: Mass Mutual, New York-based New York Life, Newport Beach, Calif.-based Pacific Life Insurance Co., Boston-based John Hancock Financial, New York-based AXA Equitable Life Insurance Co, and Omaha, Neb.-based Mutual of Omaha Insurance Co.
The goal of the consortium is to accelerate the adoption of standards by excising some of the ambiguity in the standards. Many standards will provide, say, 90% of the information ultimately contained within it, with the rest made up with extensions.
"While ACORD has made great progress toward best practices, there's a lot of interpretation in the ACORD standards as they stand today," adds David Williams, AVP center of excellence, lead for data analysis at New York-based AXA Equitable.
Be the first to comment on this post using the section below.