Despite their rigid reputation, data standards are not entirely immutable. Much like the business processes and transactions they govern, standards, and the way they are utilized, evolve.
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.
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."
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.
The devil is indeed in the details, Kim says. "Ambiguity leads to inconsistent implementation. We want to remove ambiguities and tighten the standards. Also, more importantly, we want to make it easier to adopt the standards."
To be sure, a great gulf lies between adopting and implementing standards. There are some companies that adopted standards, but are not doing large volumes of business with them because of implementation issues. The consortium was created to help address the problems insurers have had implementing ACORD standards in the past, Williams says. "We spend disproportionate effort integrating a new application into our environment."
To help surmount such issues and aid insurers, the consortium wants to make implementation artifacts available online. "To really understand what a standard says, somebody has to invest a lot of time and read through hundreds of pages of documentation to implement it," Kim says. "Instead of reading through a document, people can actually download a ready-made artifact for testing into their system."
Williams says the consortium is taking pains to make sure the plug-and-play certifications work in concert with the still-developing ACORD framework. "As the framework becomes more available, we'll be able to accelerate how we create specific implementations of plug-and play services," he says.
Kim says the consortium is still open to receiving new members. "We are very fortunate that many of the companies in our industry recognize the same need," he says. "Once they realize what they can get out of these standards, and also have access to the implementation artifacts, I'm sure they will be joining us left and right. What we really need now is for the industry to get together, remove the ambiguities, and make it easier to adopt standards so we can improve the efficiency of the industry at large. Ultimately, that benefits consumers."
Williams says that by lowering one of the primary barriers of entry-implementation costs-the plug-and-play approach will yield benefits for vendors as well. "They won't have to justify an expensive integration effort," he says. "They can just focus on the core offering and features."
Chumbley predicts consortium members can be effective advocates within the industry with the view that adoption of standards ultimately will save insurers both time and money. However, he cautions that there are limits to advocacy. "Standards are bought, not sold," he says.
Much as widespread adoption by producers induced reluctant carriers to adopt standards, a critical mass of carriers can convince more vendors to include standards in their products.
"Carriers getting together and forcing the issue will make a difference," Conlon says. "But the vendors need to step it up. You don't see as much adoption as you'd like to see from core system vendors. Very few provide ACORD XML support out of the box, so carriers purchase core systems then write translation routines to and from ACORD XML."
While it may be in a vendor's best interest to push a proprietary technology, carriers need to fear lock-in. "If you opt for a proprietary technology, you've built yourself another silo," says Neal Keene VP of industry solutions for Irvine, Calif.-based Thunderhead. "Open standards future-proof you to an extent."
To be sure, the push for standardization in insurance is significantly buoyed by the technological tide. With best-of-breed solutions and componentization also gaining sway, XML-based standards are seen as the best way to ensure true interoperability. "The macro trend with SOA, and the advancement of technology, means a lot more life insurers are adopting standards," Kim says. "The momentum is building."
Williams agrees that tighter standards are a requirement for the ultimate realization of SOA. "At a certain point in our development at AXA Equitable, we realized we were going to hit some barriers with services that have external touch points unless we tightened up how some standards were interpreted," he says. "To take the benefit of what a service-oriented architecture gives you and extend it out to business partners, you have to be much clearer in what you want from the standards."
What's more, insurers both in IT and in the business side are becoming increasingly conversant in the underpinnings of Web services, and the tenants of service-oriented architectures.
"What people know today is vastly more than they knew 10 years ago," says Neil Schapperd, president of Middletown, Conn.-based PilotFish Technology. "Now you have whole groups within organizations whose job it is to implement standards."
Schapperd says insurers are also the beneficiaries of more mature XML tools, and a good deal of hindsight. "Like any other new technology, some of the earliest adopters had unsuccessful outcomes that barely got past the pilot stage," he says. "Now you have more alignment between enterprise architects and business people. So, we're seeing a significant increase in the successful implementation of standards."
Which is not to say any standards initiative is slam dunk. Schapperd advises a pragmatic, ground-up approach, noting that it is important to let business needs drive standards adoption, rather than embracing the technology for its own sake. "Start with very specific requirement, get it implemented and perfected before rolling it out to rest of the organization," he says.
While IT may view a standards initiative purely as an efficiency play, there also are large implications for the enterprise as more business moves to the Web, self-service becomes more prominent and insurers juggle multiple distribution channels. "You don't know how customers are going to approach you any longer-they may want to do it using an iPhone," Keene says. "The adopters of standards are better-positioned to receive input from all channels."
In addition to the rise of SOA and Web services, another broad trend driving standards adoption is the increasing use of analytics. Standards give visibility into what's occurring and where it's occurring, and help quantify performance and expedite data collection from every corner of the enterprise.
"At first, standards just connected the pipes to make the flow of data more efficient," Keene says. "Now, we're moving to a whole new level where standards foundationally enable you to build much larger implementations of service oriented architectures, which allow you to report on all the things going on within an organization."
Excepting areas of competitive differentiation, Williams says consortium members and vendors are moving to a collaborative work environment where companies are more comfortable sharing material for the common good.
"It's a very positive, energetic and really interesting time to be involved in standards right now," he says.
Plans for 2010
ACORD is planning several updates for the coming year. They include:
- Consolidate the ACORD 1.0 and IAA models into the ACORD 2.0 Information Model (mid-2010)
- Complete the ACORD 1.0 Data Model (mid-2010) and 2.0 Data Model (late 2010)
- Develop simple, reusable JAVA components to be used for training on implementing the object model
- Complete a portion of the new Component model (late 2010)
- Map the most frequently used XML message formats to the V2 Information Model (late 2010)
Five Framework Facets
The ACORD Framework has five facets:
- Business Dictionary contains standardized definitions of insurance concepts.
- Capability Model defines a baseline of insurance companies' functions, and includes a listing of process names for some of those capabilities, called Process Maps.
- Information Model provides the relationships among insurance concepts, such as policy, product, party and claim.
- Data Model is a logical, level entity-relationship model that can be used to create physical data models or data warehouses, or to validate a carrier's data models.
- Component Model is a set of reusable components for the various data services in the insurance industry.
This article can also be found at InsuranceNetworking.com.
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