Although the insurance industry is generally criticized for being slow on the uptake with many newer technologies, when it comes to XML and Web services insurance may be a step ahead of other financial service verticals, according to a report from Needham, MA-based TowerGroup, Inc.
According to the report, which states that overall spending on Web services by financial services institutions will reach $8 billion by 2005with insurers spending approximately $1 billionmany carriers have already adopted XML, a critical component of Web services. Also, ACORD's (Pearl River, NY) work on data-type definitions (DTD) for P&C and life insurance and IVANS' (Old Greenwich, CT) work on DTDs for reinsurance by are helping propel the move to Web services, cites the report.
However, warns Jim Eckenrode, author of the report and group research director, consumer banking, at TowerGroup, a lack security standards could hold back a move to Web services and what TowerGroup calls the Networked Financial Services Institution (NFSI). "There are a lot of standards and data formats on how transactions are processed over the public Internet, but security has not been agreed upon," Eckenrode says. "We have to get past the security question before Web services really takes off, especially in financial services because of the sensitivity of the information. Sharing data is really not possible without the proper security."
Initially, Web services will be leveraged internally to share data and transaction capability among different parts of a financial services company, Eckenrode predictsfor instance, giving producers access to banking products without building a completely separate infrastructure to access technology in the insurance company's banking division. Another possible application would be to give different business "silos" access to information from other business units for customer service. Eventually, the ongoing integration will form an NFSI as the insurer becomes more and more integrated over time.
However, a true NFSIa company that not only links its own systems and information through standards-based Web services, but also accesses products and services from business partnersmay be a long way off, says Eckenrode. "In the near term, Web services is going to allow companies to bring together all of its separate parts," he says. "Financial institutions are going to focus on getting internal processes and straight-through processing working internally before venturing outside the company.
"Also, Web services levels the playing field for smaller financial institutions that cannot afford to acquire other companies or to move into other types of financial services products," Eckenrode adds. "However, we are probably not going to see that for about a decade."
Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio