Open road: technology engineers are pursuing newer and better ways to implement straight-through processing on the web. Standards make it possible. (Technology: Standards).

Insurers are working toward a new era in information technology in which instant sharing of information by the industry's many stakeholders will be the norm. How soon the era arrives will depend on the industry's embrace of standards and how it develops ways to use them.

Some of the stakeholders--insurers, reinsurers, distributors, claims personnel, underwriters, managers and business partners--are making great strides, but the industry as a whole may still be a long way from achieving its goals even as the road to follow has become more apparent, according to experts in the field.

"We are in a transition period moving toward a fully integrated environment with real-time interface," said Rick Gilman, vice president of the Association for Cooperative Operations Research and Development, the industry's nonprofit standards association. "Straight-through processing is a goal we are striving toward. STP is the concept that says once data is entered into a system anywhere along the value chain, it won't have to be re-entered, and all business partners along the way can access that information or add to it."

STP would result in more efficient work flow, no re-keying or data-entry errors, and greater customer service, Gilman said.

ACORD champions extensible markup language (XML) as the standard by which all systems can communicate, regardless of application or platform. That, along with the maturation of the Internet as an everyday part of business life, has fueled growing expectations for faster and better service anytime and anywhere.

Identifying information-technology eras may be more a job for historians than for tech experts, but it is clear the pace of era change is accelerating. ACORD established itself in 1970, but not until 1987 was an insurance agency able to download a form to its computer. The organization did not hold its first conference until 1993, about the time the technology industry introduced its first browser. ACORD introduced XML in 1999. Since then, change has accelerated, spurred by growth of the Internet.

"ACORD has performed a great deal of work, and it has a great deal of traction in the industry;" said Alex Letts, chief executive of ri3k Ltd., a London-based hub provider to insurers and reinsurers. "They've dragged the industry kicking and screaming to the adoption of broad standards." Now as more in the insurance industry adopt XML, ri3k (and companies like it) could "do the rest," Letts added, to move the industry toward its promised land.

Gilman characterized the eras before the current transition period as a time of a "stand-alone environment" in which systems didn't or couldn't talk to each other. Matthew Josefowicz, manager of the insurance group at Celent Communications and author of two recent e-business reports, said the years 1998 to 2000 were a time of "fear and uncertainty" for the industry regarding the sales potential afforded by the World Wide Web. Many insurance players feared being "Amazoned" or "E*Traded," meaning they were afraid of losing significant market share to new online competitors. Josefowicz said that when selling insurance on the Internet proved harder than expected, insurers began to realize streamlining communications and operations across a variety of functions was a better use of the Web, and many established e-business groups to evaluate options and build the needed systems. Many became involved in the design, construction and maintenance of Web applications.

A New Era

The insurance industry's technological capabilities have become so varied and complex in recent years that the industry now has entered a time in which the need for "interoperability"--a new word--has become great, according to Rob Cheng and CarlVon Patterson of the Web Services Interoperability Organization, which was chartered by industry members to promote interoperability across platforms, systems and programming languages. Cheng is senior product marketing analyst at Oracle Corp. and chair of the WS-I marketing committee, while Patterson is an enterprise architect at Nationwide Insurance.

"As technology gets embedded in the business, the complexity goes up, applications multiply and companies need to make their applications work together," said Patterson. A whole new approach--Web services--has been created to link application, data and services from different vendors such as Microsoft, IBM and Sun Microsystems; computers, including mainframes, personal computers and servers; and platforms, including Java/J2EE and .net.

Patterson said that when Web services are developed using standards, the resulting "endpoints" offer flexibility to consumers. He likened these endpoints to the jacks or ports of television sets, videocassette recorders and camcorders into which wires are plugged when they need to work together. "Those endpoints are engineered for consistency, whether they're on DVDs, camcorders, tape players or whatever, and whether they're built by Sony, or Panasonic or another manufacturer," he said. "You can mix them and match them, and they'll all work together."

The state of software in the insurance industry today is that it works well alone--in industry parlance, it provides "vertical solutions"--but working with other software is often expensive and difficult, according to Patterson. Celent estimated in its October 2002 report, "ACORD XML Standards in U.S. Insurance," that insurers surveyed last year either expected to achieve or had already achieved integration efficiencies of 20% to 30% by using ACORD XML standards. If embraced universally throughout the U.S. insurance industry, the use of the standards could save the industry more than $250 million in technology costs annually, the report said.

Celent reported that ACORD members make up 72% of the top 50 property/casualty insurers in the United States, 46% of the top 50 life/health carriers and 52% of the top global reinsurance carriers. ACORD maintains separate XML standards for life, property/casualty! surety and reinsurance.

Web services are built on standards of XML, SOAP and WSDL. XML is used to label information. Simple object access protocol (SOAP) is used to send XML information over the Internet in" envelopes." SOAP moves information from point A to point B, and it can even move it through a system's firewall, he said. Finally, the transported information needs to be described to its destination point, which is accomplished through Web services description language (WSDL).

Patterson said that the Web Services Interoperability Organization ensures that Web services are developed, tested and implemented in a consistent way. In his analogy, ACORD's mission is to oversee construction of the standard insurance endpoints, while the WS-I Organization develops interoperability guidelines for the wires and connectors.

SEUSS Strategy

Beginning last year, insurers started disbanding their in-house e-business groups, according to Celent. Josefowicz said there were several reasons: The Web had become an established part of life and a standard way of doing business; the economic slide forced insurers' budgets to tighten; and a "wider dissemination" of Web skills among IT professionals allowed companies to devolve those Web functions to the normal IT organization. He predicted the fully resourced "design, build and maintain" e-business groups will continue to fade from the scene.

But he said he is cautioning insurers they might be "throwing the baby out with the bath water." Instead, he urged in a January report on the future of insurance e-business groups that insurers redeploy them to what he calls "strategic knowledge-management groups." These, working in concert with a company's top management, would ensure that diverse Web-related projects "do not spiral out of control and require costly re-integration or re-engineering projects" four or five years in the future. He calls this SEUSS (strategy, education, usability, security and standardization). Basically, he argues that new-era IT projects ought to include consistent technical methodologies so that training users is easy. He also urged common security methods and use of ACORD XML and interoperability standards in platforms, coding, data modeling and methodologies.

Not only must the new e-business groups have support from the highest executive level, but business managers and IT managers must be given proper incentives to cooperate, said Josefowicz in the January report. "If the line managers are not incented properly to work closely with the central body, then the central business groups will have a hard time being effective," he said in an interview. He added that companies shouldn't compensate groups based on short-term results, and ought to consider giving them some budgetary power.

Standardization and innovation may not seem compatible concepts, but Gilman said that in the case of information technology on the Web, they are not polar opposites detracting from each other. "Actually, it is just the opposite," he said. "The more standards are implemented, the greater the opportunity is for innovation to take place. Standards allow companies to engage in business relationships with a universe of potential partners that have never been considered previously. Data standards support creativity and 'out-of-the-box' thinking because they take the connectivity issue out of the equation."

There are now more than 150 technology companies working together to create interfaces, according to Patterson. "I had never before seen that in my life," he said. "It's like a collective light bulb has gone off in the whole software industry. Companies have realized that if they work together, they can build better applications. Companies are competing on implementations, but are collaborating on standards."

Industry enthusiasm appears to be building for standardization and the new technological era it is helping to create. Patterson observed that Internet technology changes happen in waves. In 1993, for example, business people knew little about browsers, but when the Web became common, enthusiasm and use of browsers grew dramatically. "Today, who doesn't have a browser on their desk top?" he rhetorically asked. "It's de facto. Now when it comes to Web services technology, we've not seen a lot of business folks in insurance stand up on tables, but when you look at trends, this is unavoidable. The question is where you want to catch the wave."

[GRAPH OMITTED]

Evolution of E-Business Groups

E-business groups have changed from being based on fear and uncertainty
to retrenchment.

                                  Number of Groups

1998-2000 Fear and Uncertainty    Internal Dot-Com
2000-2002 Specialized Services    Design, Build, Maintain
2002-2004 Retrench and Repurpose  Strategic Knowledge Management

Source: Celent Communications

Note: Table made from line graph

RELATED ARTICLE: Web Services Interoperability Organization (WS-I)

* Founded: Feb. 6, 2002

* Founders: Accenture, BEAT Systems Inc., Fujitsu Ltd., Hewlett-Packard Co., IBM Corp., Intel Corp., Microsoft Corp., Oracle Corp. and SAP AG 

* Mission:

Provide implementation guidance to support customers deploying Web services

Promote consistent and reliable interoperability

Articulate a common industry vision for Web services

* Membership: 160 companies

Hubs May Be Ready-Made Solutions for Some

Insurers, software companies and their technology teams are relentlessly pushing for unfettered exchange of information on the World Wide Web. Private companies that have developed Internet hubs already offer that kind of service for a fee to insurance entities that meet certain standards.

"The key to it all is making the data move around the industry without it getting stuck in a cul-de-sac and re-entering manually," said Alex Letts, chief executive of ri3k Ltd., a London-based hub provider for the insurance and reinsurance industries. "it's a matter of creating a data river as opposed to a data dam. "The hub provider can pass information from any company to another as long as both use extensible markup language (XML).

Ri3k.com, which handles treaty-insurance renewals, completed its trials last year and opened for business in January with major customers. (The company name refers to reinsurance for the third millennium.) Treaty represents about 80% of the volume of all reinsurance Letts said. Ri3k charges both parties 0.5% of the premium value of contracts that go through its system to a ceiling of $10,000 measured in United States currency. The value to the cedent is to have its data funneled through a single point, while the value to the reinsurer is to receive the data in electronic form rather than through lots of faxes and mailed paper said Letts. Ri3k discussed its manner of charges with potential customers during its initial three years, and it may eventually move to a license-based equation, Letts said.

Hubs address a specific need that some within the insurance industry currently have, said Rick Gilman, vice president of the Association for Cooperative Operations Research and Development, the nonprofit industry organization responsible for development of XML standards. Two other hub providers, London-based Inreon Ltd. and New York-based eReinsure, help insurers and reinsurers develop facultative contracts. Project Blue Mountain, a venture sponsored by Lloyd's of London, provides movement of data among insurers and brokers without forcing them to abandon their proprietary systems. The American Council of Life Insurers is constructing a hub for life companies and reinsurers. Gilman said hubs that adapt to changes in their markets will be among the survivors and that the market will drive who wins and loses, as with all new products and services.

Brit Insurance Holdings plc capitalized ri3k in May 2000 and continues to invest in its rollout. Aviva, the second-largest buyer of global reinsurance in Europe, announced last year, as part of a strategic review of its business, that it is adopting the ri3k platform. Reinsurance bought by Aviva last year amounted to about $1 billion, said Letts.

While its main base of operations is in Europe, ri3k has an office in Singapore to serve the Asian markets. It lacks a presence in North America, but needs to develop business there, Letts said.

The biggest impediment to ri3k's growth is the insurance industry's reluctance to upgrade their systems and become XML-enabled, said Letts. "It's feasible, but it costs money, and it takes time," he said. "Other endeavors may be more pressing. But it will happen gradually."

Letts said ri3k is financially prepared to wait. "That's a bet we took three years ago when XML was introduced," he said. "We're not one of those companies with a massive cash burn. We've spent less in three years than many other companies have spent in one." He added that Brit, its sponsor company, has raised [pounds sterling]400 million (about $645 million) in the 12 months ending in January and that it remains a "very weil-resourced company."

In coming years, the winners in the industry will be those companies who became XML-enabled, said Letts. "The losers will be the people whose systems are too old to upgrade to XML or who lack the courage or the resources to upgrade," he said. "Those people will ultimately struggle."

ri3k.com Ltd.

* Headquarters: London

* Capitalized: May 2000 by Brit Insurance Holdings plc, an FTSE 250 insurance company

* Employees: 25

* Subsidiary: ri3k Asia, with nine employees in Singapore

* Minimum User System Requirements: Pentium-based PC, Internet connection (Microsoft Explorer or Netscape Navigator), browser, Adobe Acrobat Reader, other.

* Name refers to reinsurance for the third millennium.