The Internet and Financial Reporting.

The insurance industry is awash in paperwork, much of which is generated from communication of business-related information. A new language, XBRL, aims to standardize business and financial reporting information/terms for use over the Web/Internet.

Dramatic change is evident everywhere in how companies communicate with investors, customers, suppliers, and internally. Data emanates from different areas inside and outside of companies and, usually, comes from different systems. Then, all the data must be searched, extracted, configured, and formatted so that the appropriate information ends up where it is needed. The process is difficult, time consuming, and, too often, manual.

Business reporting in the insurance industry involves information flows from and among intermediaries, direct writers, reinsurers and numerous other parties. Significant areas of external reporting include SEC filings, reports to shareholders, statutory reporting, and tax filings. In addition to external reporting, management reporting is utilized to make internal operational decisions. The same source data that is used for external and internal reporting is reused by regulators, auditors and other parties, such as rating agencies, in an assortment of ways.

The systems and processes that support conventional methods of reporting usually encompass a combination of automated and manual processes. Substantial resources are dedicated to compiling this information and verifying validity of data. Standardization of systems and processes can help contribute to a more efficient and effective information gathering process.

Studies indicate that use of technologies to automate reporting can dramatically reduce the time and money spent on creating paper reports. Less time preparing reports translates into more resources for analysis and other endeavors such as the production of business. Technologies and standards, when appropriately utilized, can lead to a more strategic deployment of resources. Further more, agreement upon and enactment of common standards facilitates leverageable assessments of performance within an entity, across defined peer or competitor groups and in relation to industry sectors as a whole.

The insurance industry has long recognized and realized the benefits of standardization and automation. Examples include the various organizations and companies dedicated to establishing business-to-business transaction principles and external financial reporting standards such as the National Association of Insurance Commissioners' Annual Statement.

The Extensible Business Reporting Language--XBRL--is an opportunity to realize further benefits emanating from standardization. XBRL is the joint effort of more than 80 international organizations to come to an agreement on the representation of business and financial reporting information/terms for use over the Web/Internet. XBRL is, in substance, "e-business for the business reporting supply chain."

XBRL is based on XML, the Extensible Markup Language, the language of e-business; every major software developer is moving at record speed to incorporate XML into its products.

The XBRL consortium has had significant public relations activities over the past 12 months, having prepared a few questions and answers, the aim of which is to provide a better understanding of XBRL and its potential relevance to the insurance industry.

What is XBRL?

The mission of XBRL.org is to enhance the availability and cost-effectiveness of the information drawn upon to create--or use data already contained within--the business reports of today and tomorrow. The goal of XBRL.org is to facilitate the creation of specifications that enhance the usability of information by all participants in the business information supply chain. This encompasses three primary areas: existing financial reporting, transaction level reporting, and the emerging area of business reporting/performance measurement.

In the short-term, XBRL is aiming at:

* Developing taxonomies for financial statements by jurisdiction with industry sector considerations;

* Obtaining market adoption for existing taxonomies; and

* Developing strategies to expand from external reporting to internal re porting.

In the short-term, XBRL.org will focus on improving the usability of in formation provided under existing financial disclosure standards by creating specifications that allow this in formation to be efficiently and reliably exchanged between software applications.

In the medium-term, XBRL.org will focus on improving the sharing of financial and operational information that is generated and shared within organizations attempting to cope with diverse operating environments, facing changing reporting and regulatory requirements, and dealing with other challenges requiring flexible inter faces between reporting systems. As electronic commerce expands, the demand for standardized business transaction reporting, within companies, between close trading partners, and among joint ventures and other partnerships, will become stronger.

In the long-term, other standards for business performance reporting will emerge within the investor community. XBRL.org will create specifications that support those business performance-reporting standards as well. It is anticipated that the use of the XBRL.org specifications for current reporting and disclosure standards will facilitate the discussion around these emerging areas.

What are the Benefits?

XBRL will make financial statement preparation and analysis faster, better and cheaper. Some of the key features of XML that XBRL will enable are:

* Segregation of data from its presentation;

* Transfer of data "in context";

* Extensibility, i.e., flexibility for company customization; and

* Natural language terms, promoting humans and machine readability. Because of these specific features:

* XBRL reduces costs of analyzing and reporting financial information, improving internal efficiency via "create once publish many" approach.

* It increases the speed of preparation of financial data, hence the efficiency of business decisions.

* It significantly increases the speed of use of financial data and the reliability by third parties (e.g. creditors, analysts, etc.).

* It enhances the transparency of the distribution and usability of existing financial statement information while company's management still controls disclosure and data until reaching the investors' computers, so that companies can use XBRL to communicate with investors more efficiently as well as dissuading them from using secondary (perhaps unreliable), sources.

What are the applications?

Given the data-intensive nature of the industry, there is great optimism for both the internal and external relevance of XBRL. Some of the potential applications are:

* Preparation of consolidated management and financial reports--XBRL will streamline the consolidation processes for organizations that currently use reporting systems that are not on a common platform. This will result in both a more timely gathering process and facilitate the reuse of the information for varying types of reporting and analysis.

Uploading of information and reconciliations will be reduced as XBRL draws upon a single source of data for multiple reuse (i.e. financial statements, separate account reporting, tax returns, press releases etc).

* Business reporting applications: XBRL will enable more timely and accurate internal/ management analysis based upon single input of data across products, geographies, distribution channels, business processes, or any other specified and mapped criteria.

* Actuarial analysis: XBRL will allow less costly and more timely and accurate preparation of loss reserve analyses and other actuarial reports (i.e. Schedule P, internal loss reserving, benchmarking among peers, and across the industry).

* Credit analysis of reinsurers and other business partners such as

MGAs: XBRL will enable less costly and more real-time analysis of financial information for stability of reinsurers and other business partners.

* Investment portfolio analysis:

XBRL will enable more timely and flexible financial analysis of investments on both a portfolio basis and an individual investment basis. Elements of analysis include financial performance as well as nonfinancial measures and communications.

* Corporate insured risks: XBRL will enable greater transparency for insurers in regard to financial and business operations of corporate insured entities and risks. Greater transparency can be used in the context of improved underwriting of new business and monitoring of existing risks.

* Competitor analysis: XBRL will enable tailored analysis of competitor financial and business information (including benchmarking), in a timely and efficient manner with resources redirected from information gathering to analysis of information.

* Shareholder/analyst/regulatory tools: XBRL provides a powerful platform for enhanced extraction and analysis tools for shareholders and other users, such as rating agencies and regulators.

Only for U.S. GAAP?

No. XBRL has not been designed to be a U.S.-centric organization but rather an international consortium, just as the IASC is for accounting. Although it started in the United States, XBRL is rapidly expanding across the world and is gaining significant attention in a number of territories, including Japan, Canada, Australia, and Germany. A number of non-U.S. GAAP specifications are currently under development.

Our involvement

XBRL is an industrywide effort, which requires participation of all interested parties into the business reporting supply chain and, as such, we are one of the many participants in this effort. But as auditors, we have a particular interest in making sure that the developments in the financial in formation industry meet with the requirements of our clients while also preserving the interests of the financial markets across the world. We recognized very early on, the benefits that XBRL could bring to our clients and the financial markets, and hence dedicated resources to support the efforts of the consortium.

We believe that XBRL is a path toward leveraging the Web for the benefits of all participants within the business reporting supply chain serving the capital markets. It provides benefits to both preparers and users of business reporting information. By leveraging this e-business suite of technologies, we shift the fundamental reporting technology from paper (a 1,000-year-old technology), to the global e-business platform-the Internet.

Our involvement in this area is consistent with our leadership role in the market. We expect to help our clients leverage XBRL, as well as to provide an incremental level of assurance upon the XBRL data elements within the overall reporting process.

It is important that companies participate in the development of the taxonomy that may be relevant to their industry. It is as important for companies to participate with XBRL as it is to participate in traditional ac counting standard-setting discussions. Companies, make sure that your interests, needs and requirements are being addressed appropriately.

To participate, an organization can become a member of XBRL.org and participate directly in the consortium efforts in your jurisdiction. lternatively or in addition, an organization can dedicate resources to gain an understanding of the XBRL specifications and discussions, and comment on the draft specifications when issued.

If you are interested in either of these opportunities, you can obtain more information at www.XBRL.org or contact one of our Price waterhouseCoopers representatives specifically involved in this initiative.

This is reprinted with permission from Insurance Digest, a publication of PricewaterhouseCoopers. Paul Horgan is XBRL.org Chairman, Insurance Sector Working Group at Pricewaterhouse Coopers. Anthony Graziano is a XBRL.org Insurance Sector Working Group member at PricewaterhouseCoopers.