Ever since insurers started using computers to do business, there has been a debate over the need for data standards, driven by the notion that such standards are critical to the efficient operation of the industry.
Thanks in large part to efforts by ACORD, many forms in the industry have been standardized, but when it comes to a broader data standard for the insurance industry (the kind seen in banking and other financial services), it never seems to materialize.
In spite of that fact, however, the insurance industry continues to be financially robust, even after 2 of the worst catastrophes in its history: 9/11 and Hurricane Katrina. It was with this scenario in mind that National Underwriter this year approached a number of seasoned industry observers to ask, "Why has the industry done so well in spite of the fact that we don't have the standards everyone says we need?"
"What do you mean [we don't have] standards? The industry is literally awash with standards, with our 50-state regulatory system, federally mandated compliance requirements, industry self-regulatory bodies promulgating business standards, vendors attempting to get the industry to standardize on their platforms, etc.," said Judy Johnson, a former industry analyst who is now principal solutions architect, Patni Computer Systems Inc., Jersey City, N.J.
"What we have not had is standards for communicating between members of the value chain, except those that facilitate communication with vendors, and those are still implemented on a fragmented basis," she continued.
According to Johnson, the industry has done without communication standards "because a lot of hard-working people have developed manual and technology-assisted work-arounds like fax, e-mail communications and instant messaging to get work done."
Chuck Johnston, another former industry analyst who currently is group director, insurance, for Redwood Shores, Calif.-based Oracle, agreed that many standards are already widespread in the industry.
"We've had industry standards for years," he stated, noting that the industry agrees on terminology in many areas, even if there is no universal data standard. As to why the industry has flourished without such a standard, he explained, "Standards make things easier; they don't make things possible."
"It's a clich?, but it's true," he continued. "The Internet has changed the way insurance companies do business with their customers, partners and producers. Before the introduction of a readily available, open network with adequate security and identity management, generally accepted standards were much less important.
"The Internet gives insurers the ability to engage in casual relationships with a much wider range of business partners and producers, but the economics of casual business relationships require industry standard business processes and data interfaces to be cost-effective," Johnston said.
Most insurers, he claimed, "are not leveraging these capabilities today, even though emerging standards are available due to inflexible business models and lack of distribution leadership vision. Until insurers understand the opportunity standards provide in radically changing distribution models, investment in standards implementation and new business models will suffer."
Matt Josefowicz, managing director, Insurance Group at Boston-based Celent, agreed that "the insurance industry is a very robust industry," despite the lack of universal data standards.
"I don't think standards are a life and death issue," he noted. "People who portray that are unduly apocalyptic." Josefowicz characterized standards as "an important tool in tool box to solve communication problems between disparate systems."
According to Josefowicz, part of the disappointment among observers today regarding standards has to do with unreasonable expectations. "The issue is that the hype and the level of excitement that people try to create to get attention ends up presenting [standards] in terminology and putting it in a context that makes it impossible to fulfill," he stated.
