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Life Health > Life Insurance > Term Insurance

Working Toward A Single Standard For Many Players

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Just about everyone in the insurance arena agrees that having a single set of data standards for transactions is a good thing, but when it comes to how far along efforts are in developing such standards for the entire industry, experts have conflicting views.

“We are in a state of suspended standards animation,” states Judy Johnson, vice president and principal solutions architect for Princeton, N.J.-based Patni Computer Systems and a well-known industry analyst.

“The state of standards right now is pretty much exactly the same as it was a couple of years ago,” she notes. “Nothing dramatic has happened. There have been a few things but not as far as moving anything out to the industry.”

According to Johnson, the primary focus for the industry “has been around cleaning up processes for the purpose of saving money and cutting expenditures. Standards are the more strategic play, and I just don’t see it happening.”

She adds that some standards work has been done in committees organized by Pearl River, N.Y.-based ACORD, “but not too much is coming out of that in terms of actual use and implementation across the industry. I think we’re not there yet.”

Johnson blames what she sees as the current malaise in standards development on the tendency of insurers to focus on tactical, rather than strategic initiatives. “It doesn’t matter whether it’s BPO or legacy modernization; it seems to be all in the same state,” she says. “A real commitment to standards is a strategic move and carriers, no matter what lip service they give to standards, have not found the motivation to do it.”

Instead, she says, insurers care more about improving results in a given quarter. “You could argue that moving to a standards platform would make [such improvements] happen, but it’s a much longer-term thing.”

Johnson says she has seen many requests from insurance organizations for information and proposals concerning business process outsourcing and custom software development, “but there are no significant questions around standards. They’re not saying it must be ACORD-compliant; it’s not even on the radar screen.

“A few years ago, you saw a demand for ACORD compliance, but you don’t see it now,” she continues. “The total focus is on saving money and business performance improvement. Companies appear to have refocused.”

Another reason insurance organizations have been so tactical in their focus, according to Johnson, is that there is increased pressure in the area of compliance. “Between Eliot Spitzer, Sarbanes-Oxley and other pressures, there has been a tremendous amount of money and attention sucked away for compliance,” she explains. “For this to change, compliance must be less onerous, less of an issue. When you have to spend so much money to comply, it’s hard to focus on making sure your systems are ACORD-compliant. ACORD isn’t levying fines and putting people in jail.”

Looking ahead, Johnson says she sees little prospect of any major change in standards development in the near future. “We’re still too deep in the trough of getting processes straight and fixing problems,” she says. “I don’t see standards rising to the top of the heap in two years. Maybe in three.”

On the other hand, Matt Josefowicz, an analyst for New York-based Celent, sees “a definite strong interest and good participation across the industry in data standards.” In particular, he says he has seen increased awareness among insurance organizations of the potential value of standards within the enterprise.

While the standards discussion traditionally has focused on the benefits for agency-carrier communication, Josefowicz says the newer internal emphasis has been aided by the rise of SOA–service-oriented architecture. (SOA is a combination of hardware and software in which many functions can be accessed to perform business processes, independent of their native platform or operating system.)

SOA, he notes, “has made people more aware of the value of standards because most SOA web services in insurance are based on ACORD XML standards. ACORD has provided a common language for SOA.”

He adds that while “no one regards insurance standards as fully complete,” the state of standards in the industry is “pretty good.”

Josefowicz also points out that the advancement of data standards in insurance has been hindered to some extent by what he called a “network effect.” Insurance organizations look at their competitors and ask, ‘Why should I use standards if they don’t?’ he explains. “But inside [the enterprise] you need a common language.” While standards for exterior communication may be helpful to a certain degree to do business with various partners, “the biggest impact and most important thing is internal usage, which gets overlooked a lot,” he says.

He also emphasizes the importance of realizing that “a standard doesn’t have to be fully complete to be valuable.” Even a standard that is 60% or 70% developed, he notes, could help avoid some of the work that needs to be done in an organization.

“It takes time to get everyone to buy in on standards and get them widespread,” says Josefowicz. “It’s kind of chugging along. It will get there, but in the meantime, [standards] still are creating real business value. I don’t know if we’ll ever develop standards that meet everybody’s needs, unless we all start doing business the same way, but that doesn’t need to be the goal.”

In the next two years, says Josefowicz, “more and more companies will move toward SOA as a primary architecture strategy,” thus creating more interest in and commitment to standards. “There’s a positive outlook for them to play a strong role in the industry,” he notes.

He adds that standards adoption is something that is “easy to put off,” because it doesn’t solve any problems immediately for an insurance organization. “But it does enable more efficient solving of other problems from then on,” he points out. “It’s an infrastructure-type initiative, so it can be difficult to move forward. Business sponsors within an organization don’t want to buy infrastructure; they want to buy screen functionality.”

Chuck Johnston, senior director, Insurance Industry Strategy, for Redwood Shores, Calif.-based Oracle and a former insurance industry analyst, says he is “more upbeat” about the state of standards in insurance than he was a year ago.

While standards development originally was focused on interface, “any programmer can do that,” he asserts. “The harder issue is how to map data dictionaries between organizations. I see ACORD focusing on process management, data dictionaries and understanding that the SOA wave is important and more of a reality.

“ACORD standards are really a good way of putting structure around your SOA,” Johnston continues. “ACORD is far from done, obviously. They have been in the woods for a while, but now they’re actually positioned to deliver value to people who are trying to create real SOA systems.

“Do I wish they were further along? Yes. Do I wish they were a little more structured? Yes. That is the price we pay for the fact that ACORD standards have to serve a lot of masters,” he says. “At the end of the day, it’s all about value for value.”

According to Johnston, “One of the problems with ACORD has been that vendors treat it as a ‘Good Housekeeping’ seal of approval. But the real question is how you use standards to achieve business value. If a vendor buys into ACORD standards, as opposed to just doing a PR thing, ultimately the standards enable you to spend less time on integration, because you already have processes that work.”

Johnston sees the development of standards as “moving beyond” being a checklist item for vendors. “When you start to talk to people who are responsible for application architecture, they want to know what the standards base is,” he explains. “Standards have been a huge part of the process outside of insurance, and now they’re starting to seep into our business.

“ACORD has fought the good fight in tough times,” he concludes. “Now, there is real interest in and appetite for creating agile enterprises. Standards let you communicate across enterprises.”

He adds that standards are also important in compliance, both in financial and reporting controls and in signing off on business processes as complete, correct and audited. Standards for such processes that are used across companies “let you tell regulators that you have a reliable process,” he says. “There is industry agreement around a business process and an assumption that it has been vetted.”


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