In other words, while the industry has been beating its chest about the need for standards that allow disparate systems to understand each other, the software developers have done an end run and enabled the transactions despite the proprietary nature of many carrier systems.

Judy Johnson, vice president of insurance strategy at Sapiens in Research Triangle Park, N.C., and a longtime insurance industry analyst, agrees. “Standards are a good thing, but ultimately technology is making that somewhat of a moot issue,” she stated. “In the medium-to-long term, ACORD standards are largely irrelevant.”

The lone exception to that idea, she noted, is where the insurance industry is going into convergence with financial services.

The financial services industry has “certain standards, and where insurance tends to play in that arena, they are going to have to move toward those standards,” she explained. “Convergence is more of an issue than the insurance value chain moving itself.” The overall financial services industry is “leading in the area of standards, and they have a lot more invested.”

As technology continues to evolve, Ms. Johnson continued, the issue of how a message “looks” is going to be less important. “And it needs to be that way if we are going to move toward the real-time world,” she said. “Especially for big life and p-c [insurance] companies, the pressure is intense to move into real-time to get things done in a reasonable time frame that people can accept.”

However, she asserted, “the caveat is that we do need the technology standards that allow us to play in the financial services world,” where, she pointed out, “a slight delay means everybody loses money, but we're not talking about the same paradigm in insurance. Because of that, the industry has allowed itself to get behind [on standards].”

According to Ms. Johnson, insurers need to focus more on automation of processes “where things can be configurable on the fly” and on “very loosely coupled systems where you can insert and remove things quickly.” Companies must be flexible enough to do the same things they have always done but still be able to deal with events they weren't expecting, she added.

They must also emphasize adaptability that allows them to go beyond the things they already do, yet still not have to “re-engineer” everything they have done.

As a longtime observer of the technology scene, both within and outside our industry, I have to admit that, at this point, the development of data standards does seem like a rather useless pursuit, especially when the technology community is so far ahead of that effort. Standards that will help bridge the gap between insurance and other financial services are a notable exception.

Ms. Johnson emphasizes, however, that the “content” of data is what we do need standards for in insurance, and on this point, I fully agree.

Perhaps you recall the story of the Tower of Babel, where some folks wanted to build a tower that would reach Heaven, but found themselves suddenly unable to understand each other's different languagesthus unable to complete the skyscraper. Unfortunately, the insurance industry is in the same sorry state today, as carriers insist on assigning different meanings to even the most common terms, like “claim” or “insured.” This quaint little practice is part of the reason insurers' information processing systems remain proprietary.

Are ACORD standards, or any standards for insurance, completely irrelevant? Not if they deal with establishing a baseline for the language we use to talk about policies, claims and transactions.

In this area, we must reach consensus, not only to make communication clearer within our industry, but to make ourselves understandable to the broad array of financial services entities with whom we will almost certainly be dealing in the years to come.

Reproduced from National Underwriter Edition, May 21, 2004. Copyright 2004 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.