ISLF 2003 REPORT: CARRIERS RECOGNIZE XML, STANDARDS AS KEYS TO EASE OF DOING BUSINESS

The resounding themes at this year's Insurance Standards Leadership Forum, held yesterday in Chicago, was that XML-based applications make it easier for agents to conduct business and that insurance carriers are increasingly focused on using standards to improve and streamline business processes.

"Our goal is to improve the ease of doing business for our agents," said John S. Kellington, opening keynote speaker and CTO of Ohio Casualty Insurance Co. "XML helps us make life easy for the agency. Agencies do not care about the size of Ohio Casualty's IT staff, they just want ease of use," Kellington remarked at the conference, which was co-produced by Insurance & Technology and ACORD.

To meet agents' demands, Ohio Casualty is striving to provide channels that agents want to use. To do that efficiently and cost effectively, the carrier has developed an enterprise component-based architecture that emphasizes reuse of components, and is in the process of consolidating five policy issuance systems into one-an ongoing process that was first started in 1997. In addition to the component architecture, Ohio Casualty also leverages ACORD XML standards to provide SEMCI functionality to agents. "ACORD XML makes Web services possible for carriers of our size," Kellington said. "Standards make our life easier, and the advent of ACORD XML has allowed us to do business effectively over the Internet."

With a similar message about the benefits of Web services, CarlVon Patterson, enterprise architect, Nationwide Insurance, said that Web services will fundamentally change the way business is conducted. "Web services will transform business and will make it easier and faster," Patterson said, drawing analogies to how standards -- now taken for granted -- in credit card magnetic stripes and the width of railroad tracks changed business.

However, warned Patterson, "Web services is not a zero-risk game. There are challenges." But, he added, the risks should not discourage insurance companies from using XML, because waiting for final standards to materialize will put carriers at a strategic disadvantage.

At Nationwide, Patterson said, IT no longer thinks in terms of developing stand-alone applications. "The value of stand-alone applications is decreasing," he says. "At the same time, the value of applications that can be integrated with others increases at the same pace."

At global brokerage Aon, according to Kevin Schipani, director, corporate data standards, "Web services provides the capability to do more business electronically in more and different ways, at a more reasonable cost." For example, the company's Web services- and ACORD XML-based Surety Data Interchange, with a goal of creating a "no-touch, frictionless environment" for transactions involving bonds, has achieved "first-year cost avoidance of $1 million to $1.2 million," he reported.

Gartner's Kimberly Harris, director of research, financial services, added that although insurance companies actually are far ahead of other industries in adopting Web services and XML-based technologies, there are hurdles to overcome. "For starters, companies need to develop a Web services strategy," she said, adding that Gartner research shows that while 64 percent of life & health carriers and 55 percent of P&C carriers are using XML and 87 percent of life & health carriers and 94 percent of P&C carriers that are using XML support ACORD standards, many do not have an XML strategy. "Sponsorship for XML usage is vital, but most companies have no leadership or governance for XML," Harris added.

Also, Gartner research shows that P&C carriers are much more bullish on ACORD standards than are life and health carriers. Almost 42 percent of firms surveyed believe there will be universal adoption of XML standards in two to three years, while only 33 percent of life & health respondents feel that way.

Harris suggested that P&C carriers are more bullish on XML because they have been better able to quantify results and ROI on XML initiatives. "The lack of ROI is discouraging life and health carriers from using XML," she said. Between 2002 and 2003, the percentage of life and health carriers that successfully measured ROI on XML initiatives dropped from 49 to 19 percent, she reported. During the same time period, the percentage of P&C carriers that measured ROI rose from 29 to 39 percent.

The event's closing speaker, ACUITY's president/CEO Ben Salzmann, vividly described how important the use of standards has been to his company's success (highlighted by a combined ratio of 85). "Standards are vital!" he declared, offering as an example how ACUITY was able to build a new billing capability in only three days by using standards-based components. "Our competitor never knew what hit them," he added.

"Why do we care about global standards?" Salzmann asked rhetorically. "I want to compete on processes, not data. Through technology and standards, ACUITY averages 121 employees per $100 million of premium. The industry average is so much higher. I'd have to hire 500 employees and have them do nothing to be as mediocre as the industry average."

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