Reinsurance Is Embracing

e-Business Standards With Vigor

By

The reinsurance sector has never been viewed as the most technology-forward arena of insurance activity. For the longest period, dating up to the recent past, it was characterized as an industry where business was conducted in a gentlemanly good faith by word, paper and handshakes. But that is changing. Reinsurance is embracing e-business with a vigor that can only found in late bloomers.

With this comes an equally strong embrace of data standards for real-time electronic business. ACORD has responded to that interest, and in the past year its activity has been far reaching and high profile.

A compelling confluence of factors have contributed to the heightened interest and commitment to standards-based technology in the cross-border reinsurance and large commercial community. One is the pressing need, in a post 9/11 world, to better understand risk. Good data, particularly exposure information, is critical for risk managers, brokers and the industry to make better-informed decisions and risk assessments.

Another is the maturation of ongoing efforts by the London market to reform its outdated, paper-intensive business practices and lift service performance levels. Also, markets have tightened, and to remain competitive, companies are looking for ways to make their systems more streamlined and cost effective.

During 2003, ACORD worked with its global membership to create new standards for reporting location-based exposures. This activity considered large commercial insurance risks, as well as personal and smaller commercial surplus lines risks. The standards addressed a critical need. The problem was that insurers and reinsurers were asking clients/brokers to provide different types of location data in different formats, resulting in difficulties in sharing data across the markets and incompatibility with standard risk modeling software. The result was extra work for all parties, such as manually reviewing electronic information received, checking quality of data, and re-keying information into formats that could be loaded into their own, or third-party supplier, catastrophe exposure modeling systems.

The data standards group of the Lloyd’s Market Associations (LMA) helped kicked off the effort by defining data elements and guidelines for the commercial property, household, onshore energy and fine art business. ACORD, in turn, worked with its international membership to incorporate these into a common standard. It validated the standards requirements with U.S. brokers and carriers and with the National Association of Professional Surplus Lines Offices (NAPSLO), the American Association of Managing General Agents (AAMGA), and others to make sure they meet the requirements of all parties involved in risk submission.

Consistency of data requirements will help carriers better understand the risks being assumed. It will also make it easier and less time-consuming to run catastrophe modeling systems. Consequently, more accurate estimates of probable maximum loss (PML) are possible, which will help carriers and brokers better judge their own reinsurance needs. In addition, the ability to pass detailed exposure information on to reinsurers is also likely to make it easier and cheaper to buy reinsurance.

ACORDs new Binding Authority standards (used by MGAs to bind risk on the London market) were also produced based upon the Exposure Reporting standards. Both of the standards were released in July 2003.

There has been a high level of implementation between U.S. brokers and reinsurers over the last decade of the EDIFACT electronic messaging standards. The latest development is the electronic placing of risk through XML standards-based third-party hubs. By comparison, the London market has been playing catch-up. The London Market Principles (LMP) reforms and initiatives by a number of large brokers and companies are leading the way to modern systems developments. The LMP reforms themselves are far reaching and designed to improve market performance for risk placement, premium payment, policy issuance and claims processing within the London market. The LMP strategy has focused on the implementation of ACORD standards as a key foundation for improvements in many of these areas.

The LMPs Accounting and Settlement reform, for instance, is focused on providing the market with a more efficient way to process accounting and settlement transactions. ACORD standards will not only eliminate many paper-based transactions but also ensure that all electronic exchanges within London will be in line with other global markets. New LMP accounting and settlement electronic exchanges using ACORD standards will be ready in early 2005.

ACORD and its global members invested a lot of effort in 2003 to address the need for standards that link the document and data repositories of business partners. ACORDs Framework and Repository Interoperability working groups began pilot testing these new ACORD XML standards for exchanging electronic documents between repositories in early 2004, with key support from Benfield, Aon and Xchanging.

The U.S. reinsurance community is participating in the pilot to secure standards that support its submissions and claims core transactions. The London large commercial and reinsurance community is participating because it is seeking standards to support its existing electronic claims agreement systems. London has much to gain from the standardswith an estimated 1.5 million paper documents still passing through the market, the potential benefits are enormous. Some London market organizations already have investments in repositories and secure sharing of documents between business partners has become critical. It will allow user access to multiple repositories through a single interface. It will enable parallel access to claims files for all parties and provide the ability for all parties to be aware of claims progress.

The reinsurance industry, and especially the London market, is finding a new footing through its embrace of the latest technologies. And, by coupling its embrace firmly with the adoption of industry standards, it is doing more. It is leaving itself poised for swifter progress toward even higher levels of automation and ease of doing business.

Phil Brown is program manager for Reinsurance UK, ACORD, based in London, where he is responsible for development and maintenance of standards for reinsurance and large commercial insurance.

Kim McMillon is program manager, Reinsurance US, for Pearl River, N.Y.-based ACORD. Her responsibilities include the development and maintenance of ACORD standards for U.S. reinsurance and surety markets.


Reproduced from National Underwriter Edition, May 21, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.