There are three conditions required for standards to succeed.

First, there is the economic value proposition, which is probably easier to identify today.

Moving information seamlessly both inside and outside the organization has been the mantra for CIOs as it serves as an enabler for new business models. Its not only about cutting costs; its about growing markets and transforming the business.

The second requirement is that a driver is required–one with liquidity.

Organizations that control the flow of business can accelerate or retard the uptake of standards in a marketplace. In the early days, the agent associations were the primary drivers. ACORD exists today because of an agents association.

Today, however, it seems that insurers themselves have been driving standards for a variety of well-intentioned, albeit self-serving reasons.

Agents have not been as effective lately. Part of the reason is that insurers do not always get a clear and consistent message from agents even as insurers push proprietary Internet applications.

Jeff Yates, executive director of ACT (the Agents Council for Technology) in Alexandria, Va., tells us that agents effectively lobby Congress on political issues, but dont use that same strength to lobby business partners on business issues that are critical to their survival.

But leadership can come from different places. Even small- to medium-size insurers working in collaboration with their trade associations can become a force or a driver.

And dont underestimate the role of solution providers (such as vendors and suppliers), who, because they sell software and services to insurers, tend to migrate to industry standards. They would much prefer to spend their money on building unique and competitive features into their software products, but when it comes to moving data, they want to do so in a standard way to meet the needs of their customers. Data islands are deadly.

The third and last condition for standards to succeed is having the technology that enables those standards.

For that theres no need to get into all the nitty-gritty because we have a tremendous array of new tools and services today.

So, given those three conditions, what are the barriers to the success of industry standards?

Aside from being “thankless work” (someone elses words, not mine), standards are often viewed as being complicated. Of course, complexity is in the eye of the beholder, but I can understand that business people are challenged when the talk is about SOAP, XML and UDDI, just to mention a few.

Diverging incentives among participants can also slow the pace of standards uptake or implementation. Independent agencies have a significant incentive, but they are buyers of software and do not develop it. So they are at the mercy of the software suppliers, and many agencies are not happy campers when it comes to functionality for moving data to and from insurers. Insurers blame the vendors. Vendors blame the insurers, and so it goes.

Some say that the small firms win when standards are adopted since it levels the playing field in terms of moving data. Some say that the big firms win because they can hold onto and expand market share.

When you look at the list in the insurance value chain, including individual customers, risk managers and vendors, ACORD believes unequivocally that everyone wins when industry standards are adopted. We get the equivalent of a “data” dial tone; it can connect you to anyone you want.

Another potential barrier can be the emerging standards themselves. While XML is not that new, it is maturing and taking hold. But technical standards are constantly evolving (a good thing), and firms have varying thresholds for managing change that impacts development resources. Sometimes, you need to get the work done and deal with upgrades and version changes at a later time.

Finally, the last barrier is strategic complexity. It is not always easy to factor standards into a business strategy because it embraces some “heady” issues that require some intellectual juice, as Mr. Devine from McKinsey noted in our discussions.

IT investments have not always paid off, and it can be difficult to separate IT issues from industry standards issues. Its quite easy to combine them and say, “Show me the money!” Consequently, some executives do absolutely nothing until they see a beacon of some kind that will show them the way. One cant ignore the executive ego because it can also drive or delay adoption in what can be a very political industry environment.

All in all, the group suggested that industry standards would continue to progress, and the overall industry transition was going to be slow (three-to-five years) unless there was some kind of inertia-breaking event. Also, the hype needs to be controlled so it does not get ahead of industry impact.

Being able to identify the beacons that improve understanding of the economics would certainly help. I have always said that ACORD is usually the lightening rod when it comes to industry debate on single-entry and data standards. But it is also important for ACORD to become the lighthouse and provide (or point to) the beacon.

Of course, well be sure to include the foghorn for those who are still unable to see the light.

Dialogue like we had with this group is so important to moving issues forward. The neat part of this particular session was that it was interactive, and everyone in the room had a remote control responder that allowed Ted Devine to get answers from the group in real time.

I hope that the McKinsey team will repeat the session at a future ACORD event, and I will be sure to let you know when they do. If you are not on my e-mail list, just send a blank e-mail to [email protected].

Gregory A. Maciag is president and chief executive officer of ACORD, the non-profit insurance standards association based in Pearl River, N.Y., with offices in Belgium and the United Kingdom.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 22, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.