Retooling communication: insurers are expected to adopt Web services to connect with business partners more efficiently.

Web services are being touted as the next best thing in information technology and many insurers seem to agree. Celent Communications predicts that by 2006, integration of Web services will account for more than 40% of the money insurers are spending on new systems. Web services enable applications to access other applications without a previously established connection.

Insurers are attracted to Web services by the lure of reusability and the time and cost savings that can result.

The term "Web services" was coined by Microsoft Chairman Bill Gates, but there are many definitions. In its recent "Web Services in Insurance" report, Celent defines a Web service as a way to expose an application or data on one computer to a request from other applications on another computer using standard, platform-independent transport protocols and text-based messaging and data-transfer formats.

"Web services is a new way of communicating where XML [extensible markup language] is the basis of the message format," said Dr. Jason Glazier, senior vice president, chief technology officer and chief e-commerce officer for Philadelphia-based Lincoln Financial Group. "Before we had to not only decide on the information to be exchanged and the format--something that was usually changed every time because it was proprietary. Web services makes it easier because you're not debating the format of the interchange but only the data being interchanged."

In addition to being based on XML, many Web services also use Simple Object Access Protocol--an XML-based protocol--and are transmitted via HyperText Transport Protocol, the basic protocol used to transport information via the Internet. The concept behind the creation of Web services wits to enable dynamic, distributed computing on demand, so applications would be able to access functions and data from other sources as needed, according to the Celent report.

Inner Workings

Web services help insurers gain efficiency and reduce burdensome systems integration.

Allstate said it's finding increased efficiency from Web services. In 2002, Allstate created a Web service interface for its back-end systems, thus enabling interaction with the accessallstate.com application. Acccssallstate.com is the company's agent portal for its independent distributors of financial products. Prior to that time, Allstate faced the challenge of establishing connectivity to multiple back-end and legacy systems required to interface with applications. And because it didn't have an enterprise application integration platform in place, and previous integration efforts required large amounts of custom programming for each connection, the company needed a quick solution.

"We are able to modularize our architectures so we have clearly defined interface points," said Anthony Abbattista, vice president, enterprise technology strategy and planning. "And because we have well-constructed Web services and there are language, tools and format for doing so, it's helping us to develop a good level of discipline around interfaces, particularly around sending data back and forth between different systems."

Lincoln Financial Group took a somewhat different approach in leveraging its "Service Broker" Web services solution for Web content syndication for product information and sharing account information with distribution partners' Web sites. When the partner's formatting/security/communication application--the servlet--is installed on a partner's server, it provides a wrapper that can accept Lincoln's content and application and still maintain the partner's look, feel and brand, said Glazier. The servlet manages for the partner such functions as passwords, authentication and digital signatures. Just one line of code is then needed when the partner wants to include Lincoln content or an application, he said.

Launch Pad

In this year's third quarter, CNA will deploy its next release of its services-oriented architecture which supports XML Web services. The Web services will be used for internal services applications to retrieve customer policies, eliminating the need to log into several systems and rekey information. Instead, Web services will bring all the data within an XML environment to users in just one click, said Karl Gouverneur, CNA vice president, solutions and architecture. In addition to increasing speed to market, he believes Web services will achieve business value with increased developer productivity. "However, [Web] services in and of themselves don't add any other value ... it's when service reaches critical mass and when it gets used over and over that you reach that business value," he said.

For many insurers that rely on Web services, adoption of ACORD XML standards is important. In 2003, ACORD and Microsoft created a service that links standardized insurance forms to XML Web services. The forms, which are developed using Microsoft Office Infopath 2003, enable insurance agencies to fill out electronic forms and then link the data with one click to other forms, back-end systems, databases and applications via XML Web Services.

"ACORD XML is very important for the insurance industry's adoption of Web services because everyone with Web services is speaking in a common protocol or format and, with ACORD standards, they are agreeing on a common vocabulary," said Matthew Josefowicz, manager of Celent's insurance group and author of the Celent study. This, in turn, makes internal and external data integration even easier. "There are two steps in data sharing or integration between applications--one is getting machines to understand each other and the other is to map data elements between ones used by each party."

Value Proposition

Reusability is the beauty of Web services, said Sandy Stepp, Internet development team project manager for State Auto Insurance Co. After developing Web services for its Windows-based desktop application to provide agents with credit scores, State Auto was able to modify and fine-tune the credit order for its Web-based applications. "We didn't have to rebuild it, and it can be used lot several different applications going through the same logic," she said. The company has since built several other Web services, including leveraging .NET support for its AgentSite--a Web-based agent extranet for billing and claims status inquiries, document retrieval, and online reports--by creating an internal Web-service architecture.

Among their advantages over traditional electronic data interchange, Web services are reusable for additional business partners as well as internally. They easily are expanded to include more information that needs to be shared, and can use public networks rather than relying on private network connections between partners, according to the Celent report.

Not having to duplicate functionality is one of many advantages St. Paul Travelers attributes to its Web service solutions. The company's core activities, such as writing new business, policy changes, billing and claims inquiries, have a Web service attached, and the company considers them a very critical part of doing business, said Patrick Gee, vice president, operations, small commercial and personal lines. "When building systems we use internally, we architect the system so it can work internally but also externally with a Web service with agents we are connecting to, and that way we don't have to do it twice."

Gee said Web services help eliminate many telephone calls between agents and clients. Instead, agents can stay in their management system, pull up information while they are on the phone and don't have to log off the system--a result that produces answers in a matter of seconds, be said.

Web services also generate revenue opportunities. As a simple and secure way to connect with partners, Web services speed software development and maintenance for less money, and reduce burdensome systems integration.

Prudential Financial has found that from an architectural standpoint, Web services allows it to separate the service component of complex business logic with how that data is being used, said Mike Mandelbaum, vice president of corporate information technology group. "For instance, we may have services that pull mutual fund evaluations or life insurance policy evaluation from our back-end systems and then make them available to a variety of applications that need them."

Insurers' IT departments also are embracing Web services. "Application architects see the value in it and want to build everything around IT. Application developers also see value in writing code to Web service standards, and the technology community is fully endorsing it," said Mandelbaum. The business sector, on the other hand, isn't always as aware of its potential, he added. "It's a way you build systems and it's not important that they know a lot more than that." He uses the example of homeowners often being unaware of the type of framing or sheathing material used to build a house. "Web services is like that. It's an internal component that if done correctly isn't visible to the business community but makes fielding, building and maintaining the application that much easier."

Adoption Techniques

The value of Web services comes at a price. Many insurers say the biggest risk around Web services is the skill sets of insurance IT groups, many of whom are only now becoming familiar with the relatively new concept. "There are a lot of tools and players in the space, so being successful is about condensing it into a set of people and standards you can work with," said Allstate's Abbattista. Staff training is also key. "It's important to start small, get bigger and understand how to scale both people and systems resources."

Security concerns can be minimized. "Since most Web services are taking place either behind a firewall or between known parties, security isn't really all that much of an issue," said Celent's Josefowicz. Many insurers believe their common security methods such as HyperText Transfer Protocol over Secure Socket Layer and Secure Sockets Layer(HTTPS) are minimizing security concerns. HTTPS encrypts and decrypts page information and requests between a client browser and the Web server, and SSL hides information a Web browser and a Web server send to each other. Lincoln Financial, for instance, accepts a user's identity over a secure HTTPS with a digital signature.

Performance risks also concern some. "When you're going to publish and be a highly available Web service or service-oriented architecture component, you are only as good as the weakest system supplying you with data or other application services," said Abbattista. Users may have to do some architecture or data replication work, he said, to get the kinds of service level and reliability they want. "It might require duplicating or beefing up some systems that Web services rely on." The solution, he added, is having service level agreements that delineate services.

Onward Bound

It is estimated that nearly 5% of U.S. enterprises will have completed Web services projects, with 80% having some projects in motion, by 2008, according to a report by global market intelligence and advisory firm IDC. The fastest growth is anticipated to come from large manufacturers and services-oriented corporations, although the market will be dominated by small enterprises as they become adopters by 2007.

Many experts believe insurers will follow a similar path. "Insurers will have to eventually move toward Web services as a way to empower their partners," said Lincoln Financial's Glazier. And the appetite for adoption may he quicker than expected. Celent predicts that insurers' systems integration spending on Web services will climb to $249 million this year, up from $78 million in 2003. By 2006, spending is expected to near $744 million.

"As technology evolves, new opportunities may be found, and as adoption of ACORD standards spread even more out into the industry, that will only lend it more momentum," said Celent's Josefowicz.

The Road Ahead

Questions remain. "Much of the activity that's been accomplished in the last several years with Web services and automating transactions has been focused around a commodity product," said David Findley, senior vice president of insurance operations for St. Paul Travelers. 'The question now as we move out mother two to four years is how much of those Web services will start applying to midsized accounts, more complex ones, national accounts and big accounts being handled by large brokers."

Expect Web services to evolve. "Right now if you just want to post or get data or access a particular business function, Web services are extremely helpful, but we're just in the infancy stage now from a transaction management perspective," said Allstate's Abbattista. "Because it's not yet fully mature, users need to be careful of some risks, such as not getting transactional integrity they need or want in an insurance systems environment."

Business Value vs. Difficulty of
Adopting Web Services * in Insurance

The chart plots the potential business value of
some of the major applications of Web services
in insurance against the difficulty of deploying the
application

[GRAPHIC OMITTED]

* A Web service is a way to expose an application or data on one
computer to a request from other applications on another computer using
standard, platform-independent transport protocols and text-based
messaging and data-transfer formats.

Source: Celent Communications, "Web Services in
Insurance." August 2003

Key Points

* Celent Communications predicts that by 2006, more than 40% of insurers' new systems integration spending will involve Web services.

* Web services enable applications to access functions and data from other sources as needed.

* By providing a simple and secure way to connect with partners, Web services generate revenue opportunities.

Learn More

Allstate Insurance Group

A.M. Best Company # 00008

Distribution: Independent agents, direct agents, work site, financial institutions, broker-dealers

CNA Insurance Cos.

A.M. Best Company # 18313

Distribution: Agents and brokers

Lincoln General Insurance Co.

A.M. Best Company # 03723

Distribution: Financial advisers, financial intermediaries

Prudential Insurance Company of America

A.M. Best Company # 06974

Distribution: Sales force, brokerage general agencies, brokers and other independent distribution channels

St. Paul Cos.

A.M. Best Company # 00080

Distribution: Independent agents and brokers

State Auto Insurance Cos.

A.M. Best Company # 00856

Distribution: Independent agents

For ratings and other financial strength information about these companies, visit www.ambest.com.