The X-Factor in Commercial Lines

With the introduction in June of XML data standards for commercial lines by the Centre for Study of Insurance Operations (CSIO), the property and casualty industry is on the brink of real progress in creating seamless data exchange between brokers and insurance companies. There is an opportunity to translate the benefits gained in personal lines through upload and download to the world of commercial insurance – a data-driven transaction involving detailed information and unique coverage from carrier to carrier.

But questions remain: How quickly will (or can) the industry adopt the new CSIO XML commercial standards? Will the pent-up demand during the wait for commercial standards result in a release of activity? Who will be among the early adopters? And what are the challenges for carriers, brokers and vendors in implementing XML standards?

XML CANADA AND U.S.

In Canada, the CSIO’s new XML Standards release 4.0.0 will allow companies to implement fully 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. The new CSIO commercial lines standards will act as the agreed-upon structure for XML data feeds between brokers and insurance carriers.

Much of the CSIO work on commercial lines is leveraged from its sister organization, ACORD, in the U.S. ACORD has worked with XML standards since 2000 and currently supports three XML standards for the property and casualty and life areas of the U.S. insurance industry, as well as larger commercial and reinsurance in Europe. The U.S. CSIO spent a considerable amount of time, energy and resources customizing the ACORD XML standards to the Canadian environment for commercial lines.

COMMON VOCABULARY

While XML standards enable separate applications to “speak” to one another, they can’t understand each other without a common vocabulary. The CSIO standards release 4.0.0 provides this common vocabulary of data and transaction types. It will allow insurance companies to reduce the costs of internal systems integration and vastly improve communication with external applications such as broker management systems (BMS) or commercial management systems (CMS).

A study of XML standards in the U.S. property and casualty insurance industry by the research firm Celent showed that companies achieved integration efficiencies of 20-30% by using ACORD XML standards. It also estimated the widespread embrace of XML standards could save the industry more than US$250 million in technology costs annually.

Essentially, the CSIO standards for commercial lines open the door not only to standardizing the industry, but also to creating true efficiencies in communication between brokers and multiple carriers. Traditionally, brokers need to submit a commercial account to several underwriters and input the same information over and over again, in slightly different ways for each company. The design of proprietary insurance company applications only made the problem worse. One of the biggest complaints of brokers today is the problem of multiple data entry and re-entry into various insurance company “small business solutions.”

For brokers like Stephane Cloutier of Montreal-based Morris & Mackenzie Inc., the advantages of XML standards can be found in easier communication with carriers.

“The main benefit from a broker standpoint is that it allows us to communicate much more easily in terms of transmitting data from our end to insurers,” according to Cloutier, who is the brokerage’s National IT Director. “It is much simpler to communicate through XML rather than the old way, which was flat files. Every carrier has it own standard on these files. I know brokers do not want to enter into every company their commercial risks. It is not like an auto application; sometimes you have four or five page applications to fill out. If you have to enter it in every carrier, it can be a lot of work and very time-consuming.”

DATA EXCHANGE AND THE MISSING LINK

The widespread use of XML in commercial lines will allow for real-time, automated exchange of information to multiple carriers. Critically, it will eliminate the need for multiple re-entry of data into various insurance company systems. This efficiency is truly achieved when the broker is using a CMS. In this way, a broker can gather client information, prepare an application and send it to multiple carriers for comparative rating. A proposal can then be prepared for the client without having to re-enter information. Once client information is gathered and input in a CMS, it can be used for any purpose: binder, proposal and application. Also, it is possible to attach photographs, Microsoft Word document templates and certificates through the CMS.

Right now, the key process absent from this equation is automated upload to multiple carriers through standard XML message format. With the CSIO standards for commercial lines, there is an opportunity to communicate with multiple insurers in a single interface setting. It is all about streamlining the information-gathering and submission processes toward real-time processing, paralleling the move to efficiency in personal lines. Brokers will increasingly collaborate with insurers that can save them steps and provide greater ease of doing business in small to mid-sized commercial accounts.

Aviva Canada is actively looking at how XML standards for commercial lines will allow improved communication with brokers. “The CSIO standard means that for the first time, commercial lines business has a universally accepted data standard upon which we can build data transfer between broker management systems and insurer rating or policy issuance systems – without creating proprietary solutions,” Rick Rass, assistant vice president at Aviva Canada’s commercial portfolio managed business, says. “If we have one bugaboo in this industry, it is creating proprietary solutions.”

Rass sees commercial package policies and others like IRCA (Individually Rated Commercial Auto) as prime opportunities for XML data standards. “The XML standards will significantly reduce the cost of data interchange and will also accelerate the pace at which we can implement true solutions to provide that crucial ‘lift’ for brokers,” he says.

This sounds promising, but for many carriers and brokers the work has just begun. It is one thing to define a standard format, but it is much more difficult to implement that standard. Challenges abound in ensuring that the CSIO XML standards for commercial lines are universally adopted and maintained by various groups within the property and casualty industry – including carriers, brokers and vendors.

FUTURE CHALLENGES

A key challenge for brokers is how they can keep pace with the increasing demands of their commercial book of business. Clearly, many brokers are looking to grow their commercial volume, and it is becoming a more competitive arena of insurance. Clients expect much faster turnaround on quotes. A majority of brokerages still uses a combination of their BMS, typically not designed to handle commercial accounts, and an awkward mix of other software applications such as Microsoft Word and Excel. These types of solutions are not well positioned to meet the real-time processing requirements of commercial SEMCI through XML standards.

Clearly, insurance companies will have to adapt their internal systems to the new CSIO standards for commercial lines, while vendors will have to provide the functionality for XML message formats. Much of that work is already underway; the industry can expect to see progress for the rest of this year and into 2007.

A more general challenge for the industry is to maintain the consistency and structure of the CSIO XML format. There may be a tendency to customize the standards beyond the flexibility the structure offers, or to meet the existing needs or constraints of insurance companies or vendors. The XML stream that comes to insurance carriers from brokers (and their vendors) should be readable in exactly the same way, every time.

Where will brokers get the biggest boost from XML standards for commercial lines? It may come from the ability to move data from their management systems and automatically populate various company rating solutions. Or the benefit could be in the download of policy information from the insurance company to the brokers’ management systems and the resultant elimination of data re-keying.

Whether the benefit is on the front or back end, brokers can seize the opportunities of the CSIO XML standards and adopt a vastly more efficient way of processing commercial accounts. Those insurance companies that act as early adopters can provide brokers with a greater ease of doing commercial business – and likely gain market share in the process.