Brokering Connections with Carriers

After months of hard work, the Centre for Study of Insurance Operations (CSIO) officially introduced a commercial lines standard for XML in June. With the participation of insurance companies, brokers and vendors, CSIO was able to put together an industry-built model for handling small-market and mid-market commercial insurance package policies within Canada.

The standard is a big step forward in the property and casualty marketplace. And yet, there is also a sense that the work is just beginning on real-time data exchange in commercial lines. Today, there are few examples of true “bi-directional” data transfer between brokers and insurance companies for small- to medium-sized business risks. The reasons for this apply to both sides of the distribution fence.

First, many brokers have not invested in commercial management systems with structured data and standard coding. In fact, until quite recently, most brokers have relied on paper-based/fax processes to transact commercial accounts. Numerous errors and delays are inherent to these processes, including incomplete information, callbacks for missing data and re-inputting. Some brokers have tried to adapt their broker management systems through MS Word and Excel, but this is a patchwork measure that does not code data or address electronic data interchange. Most progressive brokers are starting to send encrypted PDF submissions to their underwriters via email; although this may be more efficient, it is still not true data exchange. It is, in reality, just a more efficient fax.

On the company side, few insurers have built standards-based interfaces into their systems. Several carriers are actively experimenting with XML for personal lines, but the same is not true for commercial business. There are few examples of insurers facilitating real-time commercial data transfer based on industry-wide standards. In fact, some companies have gone the other way: they have developed proprietary Web portals that require brokers to input data in customized electronic forms. So the broker has gone from four or five unique, paper-based processes to four or five unique, online processes. How exactly is this progressive?

XML STANDARDS

The development of industry-wide XML standards for commercial data stands as a solid potential breakthrough to the challenge of individual company solutions. A true XML standards-based architecture enables programs written in different languages, and on different platforms, to communicate with each other through common standards. The advantages of building XML standards messages include improved and easier coding procedures for programmers based on a consistent message design. Another benefit involves a design that provides for tighter validation of business data based on transaction or line of business.

There are, however, some misunderstandings about what XML can and cannot do. First off, standards are not exactly the sexiest topic in the world. When people start talking about “tags” and “schemas” and “document type definition,” many business people have to rub their eyes to stay awake.

XML stands for Extensible Markup Language. It is not a programming language, but rather a way to structure, store and send information. XML uses tags to define a data structure and schemas to code business rules for XML messages. XML is really a cross-platform tool for transmitting information independent of software or hardware.

In Canada, the CSIO’s new XML Standards release 4.0.0 will allow companies to fully implement commercial lines package policies, claims notice of loss and accounting (billing inquiry) messages. These packages include automobile, property, liability, crime and other relevant coverage portions. Based on the ACORD version 1.7.0, the CSIO 4.0.0 XML standard features extensive additions through code lists and business elements to ensure Canadian content requirements for commercial insurance messages. Going forward, the new CSIO commercial lines standards will serve as the conduit between broker systems that have coded commercial lines data and insurer systems.

Now that the starter pistol has been fired, the industry will have to wait and see which companies and brokers (and vendors) use the XML standard to structure information for real-time data exchange. The bottom-line benefit is improved workflow for both brokers and companies. Insurers that adopt the XML standard can speak “the language” of the broker’s commercial management system, providing real-time service that allows brokers to move data directly into the company environment.

The standard itself does not mean integration will be free or easy. XML is not a panacea. While the CSIO has published the technical standard, it can be interpreted in slightly different ways by various companies and users. To leverage the standard and communicate electronically with brokers, an insurance company must have the ability to perform a gap analysis of the different interpretations and map the data elements to create a rationalized data schema. Companies also need to map their internal legacy databases to the XML standard to access information in their policy administration systems. There is work to be done with XML, but it can be done.

APPLICATION OF XML

We have already seen some glimpses of XML success stories in commercial lines. In Canada, Lloyd’s Lineage portal is able to upload commercial premium reporting information from some brokers. In particular, Canada Worldwide Underwriting Agencies Inc., an MGA that assists brokers across Canada with all classes of risks based in Calgary, began uploading commercial premium data through XML to the Lineage portal last year. Canada Worldwide Underwriting Agencies Inc. estimated its savings in manual data entry costs alone was in excess of CD$150,000.

ING also pioneered a bi-directional data transfer through its ING Edge Web site in Western Canada for both quotation and bind transactions. Policy Works was instrumental in helping these companies use XML standards for data exchange. While both the ING and Worldwide Underwriting Agencies initiatives pre-dated the CSIO XML standard, they provided Policy Works with valuable experience in exchanging commercial lines data with insurers electronically.

In commercial lines, momentum is on the side of insurance companies and brokers positioned to trade data using the CSIO XML standard. Given the complexity and size of insurer legacy systems, companies will clearly need to use XML standards for internal enterprise integration. They will then need to build external links to brokers. Many insurers are putting resources into this area right now.

WILL BROKERS USE IT?

A key question is this: Are brokers ready to pick up the mantle of structured data and coding to achieve real-time exchange? Commercial management systems provide the tangible benefit of already having industry-standard coding. Brokers with a proper CMS have the advantage of collecting data that is already coded and ready to go. With the CSIO XML standard, the gap between insurers and brokers is slowly narrowing.

The only way to reduce the total cost of the broker distribution channel is through bi-directional data transfer. Both sides must benefit from the reduction of re-keying and associated errors and rework. The CSIO’s new XML commercial lines standard represents an important step in creating this mutual benefit.