This Is Your Data
Artificial intelligence (AI), business and data analytics, digitization, and straight-through processing are the goal posts where the insurance industry is headed.
But you don’t get to any of those without good data. And you don’t get to good data without good data standards.
Let’s say, for example, that a broker is trying to do business with a carrier, but their systems store information in different formats—perhaps “last name, first name, middle initial” versus “first name, middle name, last name.” Multiply this kind of inconsistency across an ecosystem that can include a dizzying array of other parties—agents, reinsurers, solution providers, financial institutions, regulators and more—and data integration becomes difficult or even impossible.
ACORD (Association for Cooperative Operations Research and Development) was founded to overcome this obstacle. The nonprofit, industry-owned organization offers standardized forms, electronic messaging formats, and data definitions and glossaries in order to establish a common language for the industry. ACORD believes more standardized data and processes are more easily automated, enabling technologies like AI to go full throttle on populating, extracting and analyzing that data.
Efficiencies in other industries are pressing insurance forward, potentially toward form-free processes.
Artificial intelligence and blockchain will move the needle, but standardized data is crucial to success.
Currently, fewer than 25% of carriers use a consistent data model internally to manage and control data. Imagine how low the percentage is across all industry players.
ACORD is now working on translating existing standards into those used by new digital technologies like application programming interfaces (APIs), mobile apps and the internet of things. The existing ACORD message formats were developed to be extremely comprehensive, in some cases including hundreds of elements. But the newer generation of digital technologies often include use cases that have a narrow, specific purpose—for example, updating your address on your insurance company’s mobile app or uploading a photo of your car accident. Those obviously don’t require the full inventory of data elements to be uploaded and downloaded every time. So digital standards are being created to facilitate these more fine-grained, “microservice” data exchanges, allowing enhanced communication between mobile applications, agency management systems, carriers and insureds.
A Long, Complex Process
Bill Pieroni, CEO at ACORD, notes that data gathering has always existed in the insurance industry, and ACORD’s well-known forms are just one manifestation. “It is important to recognize that all of this data is needed for underwriting, to receive a first notice of loss, process a claim, or endorse a policy,” Pieroni says. “I think the frustration—one which we share—is that if it is paper-based, it is manually intensive.”
Those of you who have been in the industry for some time may remember the slogan “Paper-Free in ’83.” Yes, 1983. While that benchmark has been revised—can you say “paper-free in ’23”—there has been substantial motion in that direction with XML, blockchain and other digital advances. The industry isn’t paper-free yet, but there may come a time when even forms are no longer needed.
Sometimes, Pieroni says, small, incremental steps are necessary to further digitization in an industry as complex and diverse as insurance. “When you think about insurance, it is a complex ecosystem made up of third-party vendors, brokers, agents, carriers, MGUs, so to eliminate the need for paper, the industry has to co-evolve,” he says. “In the U.S. alone, there are more than 35,000 agents. Think about the scale and scope involved.”
“When I think of what we do at ACORD,” Pieroni continues, “we develop the data models and standards. We are providing the logical elements that allow people to capture data in a consistent way. Those standards originally manifested themselves through paper. As carriers, brokers and systems vendors evolve, they will be able to leverage those data standards to either collect information from third-party sources or develop insights from it. And we at ACORD have a responsibility to work with the carriers, the brokers, the vendors, in encouraging them to digitize. But, you know, there are scarce resources. I empathize. So I understand some of the reservations about implementing standards. But they’re needed.”
ACORD also must contend with integrating new streams of data from new sources.
Pieroni says “third-party data sources,” such as compiled data covering weather, crime trends, and publicly filed information on properties and individuals, among others, enhance traditional-form data. “What we are doing at ACORD is working on descriptions of the raw data elements to allow them to be captured in a consistent way,” he says.
Progress is being made, Pieroni says, and digitization advances are increasingly distinguishing industry leaders from those falling behind, as demonstrated by ACORD reports on digital maturity. “You clearly see a strong correlation between those insurance organizations that have digitized and increased value creation and the less successful results of those that haven’t,” he says.
But Pieroni insists much work remains to be done. “Globally, fewer than 25% of carriers use a consistent data model internally to manage and control data,” he says. “So one of the first steps I would encourage is that the carriers begin to, within their own enterprise, implement a consistent data taxonomy.”
ACORD’s models are conceptual constructs that organizations can use to structure and guide the development and architecture of their internal systems. Acting as the “brain” behind the different software applications and systems, the models map out the relationships between software applications and systems but are not tied to any particular platform or programming language, so the models can be easily implemented in whatever formats or systems the user wants.
Adoption of and adherence to standards lubricates the system so the moving parts don’t seize up. In the past, the insurance industry has tried to capitalize on shared data in exchanges and electronic markets, but some of those efforts foundered due to a lack of data consistency. Without such cooperation, the data could not be used across systems and platforms. Many in the industry wanted to leapfrog the painful step of data standardization, thereby gaining the benefits of sharing without the long, complex and expensive process of scrubbing and standardizing data. They have found out the hard, and costly, way that shared data standards are the bedrock of collaborative digital systems.
“Many of the people who are insurance data ‘lifers’ have seen many data optimization initiatives for brokers and agents come and, in most cases, go,” says Kirstin Duffield, CEO of Morning Data, a U.K.-based supplier of software and service solutions for the global insurance industry. “There are a few software solutions that have been largely adopted across the market, such as Class and ECF. Unlike those that failed, they had standards.”
Lloyd’s supplies some good anecdotes to demonstrate the integration problem the industry faces.
“For example, all the brokers that enrolled as Lloyd’s brokers were given a BSM [broker signing message],” Duffield says. “Depending upon when they enrolled, this message was in different formats over time, including an email text within it, an email with a table in it, an attached Excel spreadsheet, or a .csv file. A standards-bridging solution was brought in to align these, but—with a charge of £12,000 per annum per entity compared to the other, less robust but free option—the standards-bridging solution wasn’t accepted across the market.”
Another integration glitch featured a PPL (Placing Platform Ltd., the London market’s electronic placement platform) integration option that asked for 11 items of data, based on the original system from which the PPL solution evolved, Duffield says. “But there were conflicting territory options that made for a furrowed brow,” Duffield says. “You could place a risk in Latin America or South America, so which one do I select for Chile? There were three options if it were an Australian risk—Australasia, Far East and Pacific, or Pacific—and the catch-all option of ‘all countries except your own’! And it didn’t ask what your country is.”
Clearly, if the industry to advance in efficiency and data analytics, it will have to tackle standardization.
What’s Driving Standards Development
Data collection and processing are gradually being enhanced by new technologies, including AI, quantum computing and blockchain.
“The impact of technologies in the near term is almost always overstated. However, over the long term, AI and quantum computing will have a transformational impact on the industry,” Pieroni says. “There is a confluence of emerging technologies that will dramatically increase the speed and accuracy with which AI can do its work. Imagine an industry where the cost of prediction is zero. When you are trying to understand what is the risk, what is the price, what is the chance of a lapse, when [the cost of] that becomes zero, I think AI will have a massive transformational effect.”
Some of the largest brokerages, including Aon, are working with ACORD to use brokerage data in ways that facilitate AI. “Aon is working on a number of projects with ACORD that involve exchanging information more effectively,” says Joe Propati, Aon’s chief operating officer for North American retail. “Anytime you move, capture and interpret information, there is an opportunity to do it more effectively with AI.
As ACORD works to create new standards for emerging technology, decisions must be made on where to focus. Pieroni says ACORD has a set approach for evaluating new technologies.
“One of our ongoing studies is how do you know which technologies will make it,” he says. “Having looked at hundreds of technologies over the last 20 years, we developed a disciplined framework to evaluate the viability of new technologies. Still, you never really know. Even if a technology has all the key attributes, it may not survive. So another thing we look at is industry commitment. If we have only one member pursuing a technology, ACORD may or may not devote a great deal of resources to it. However, when you see something like blockchain, the interest globally among our members is significant, and our standards are involved in every major initiative. Common data standards are a key enabler to supporting blockchain, so we make our data model and standards readily available to those seeking to develop blockchain solutions.”
Pieroni also says ACORD is trying to spur innovation in open technologies and open APIs. “We support grassroots startups by making standards available to them, providing support to get them off ground, and sharing thought leadership,” he says. “Also, through our annual ACORD InsurTech Innovation Challenge, we provide startups with access to exposure, mentoring relationships and potentially even funding.”
But technology is not the primary driver in standards evolution, Pieroni says. Instead, it’s business model evolution. “Improvements to the data model do come from technology, but more often it’s product innovation. It tends to be business-driven,” Pieroni says. “A new approach to thinking about managing risk—that is what drives model expansion.”
As new approaches and new risks emerge—and ACORD must decide where to invest—its members are a primary source of information. “I can tell you that everything we do is driven by our members—we do not develop anything in a vacuum,” Pieroni says. “While our data model is rich and has a 40-plus year history, there may be data elements that are not yet defined. Out of the thousands of data elements, dozens need to be added. For example, cyber. Cyber needed to be added to the model, because it previously wasn’t looked at as a discrete risk. The biggest help our members give us is saying, ‘The data model needs these elements.’ If they have worked on it, we will say, ‘Will you donate it to us?’ And they often do, which is very helpful.”
ACORD’s recent release of new employee benefits standards provides a good example of this process, Pieroni says. The ACORD Member Enrollment Standards define the data elements that go into the benefits process so that a party can extract its member data from its internal system, translate the data into the ACORD member enrollment standards, then transmit the data to a trading partner. The partner then processes the data within its internal systems. It’s all about providing a common format for industry collaborators to easily exchange information.
“The employee benefits standard is not something that our members had asked us for historically,” Pieroni says. “But members started asking for it. And we didn’t have it. So we could either bring together members into workgroups and design it tabula rasa or we could go to the marketplace and seek a donation from someone with a standard or elements of a standard.
“Benefitfocus is the leading platform for benefits across the Fortune 500 in the United States, and it writes for dozens of carriers that already use their platform’s standards. They donated their employee benefits standard to us. That donation greatly accelerated our ability to release an employee benefits standard to the industry.”
Pieroni says the industry is generally very receptive to sharing standards and system data, with few companies concerned about losing proprietary intellectual property. “Increasingly, there is a recognition that sharing data, and data standards, benefits everyone, including clients,” Pieroni says. “Our members readily share data definitions and formats with counterparties. They recognize the network effects and that the idiosyncratic term you have for, let’s say, ‘cyber risk’is not a source of competitive advantage.”
ACORD is sometimes challenged to keep up with the desire of some members to more swiftly implement technology and for ACORD to cede them more control in its standards work, says Christian Kitchen, head of technology and innovation at Miller Insurance Services. “They are a bureaucratic and highly governed organization,” Kitchen says of ACORD. “As the digital needs of the market change, they need to be responsive to that in different ways, such as by embracing open-source approaches like GitHub and open APIs, which allow the community to directly collaborate on standards. That is an approach that is relatively new to ACORD and one that involves a different environment and requires a different level of expertise. They are starting to develop the expertise, but they need more experience. It also requires addressing their bureaucratic legacy. Bill Pieroni is an engaging and dynamic person, and if he can bring that engagement and dynamism into how we think of digital standards, that would be a game-changer for ACORD.”
ACORD is working with a number of London market stakeholders to improve accessibility and cost-effectiveness as part of a general industry reform effort for that market.
“We’re involved with every London market modernization initiative going on,” says ACORD CEO Bill Pieroni. “I can tell you 50% of the London P&C market, 60% of the global reinsurance market, and 75% of global reinsurance broking in the London space use ACORD standards. We have global reinsurance and large commercial standards that span placing, accounting, claims, settlement and document repository processing. The market exchanges millions of ACORD electronic messages annually. So we are part of the initiative to modernize the London market, and all the major players are ACORD members and active participants in our standards development process.”
Here, too, ACORD members are providing important contributions to enhance improvements to standards. “We’ve had a long history of using electronic messaging to drive our core delegated authority business, in particular, and to streamline our operations,” says Christian Kitchen, head of technology and innovation at Miller Insurance Services, based in London. “Ten years ago, we built an XML standard for the delegated authority business for exchange of risk and premium information for our clients that worked well. It took a lot of time, effort and heavy investments in IT.” Kitchen notes the London Market Target Operating Model (LM TOM), a core component of the London market modernization proposal under the London Market Group, was solving a similar delegated authority market problem.
“Through discussions with ACORD,” he says, “we transformed our data into an ACORD standard that could support the LM TOM project and shared this data with ACORD without charge. We very much feel that making the process easy for our industry’s clients is in everyone’s interest.”
ACORD’s London market effort is not without challenges. “When you have a rich tradition and history, 300 years old, the deeper the legacy, the more difficult it is to execute behavior-based change,” Pieroni says. “Often, the benefits of change take a long time to accrue. Also, legacy is a real source of advantage for most insurers—the relationships, the balance sheet, the culture, the network. These factors tend to make our industry highly resistant to change.”
Kitchen claims “a big cultural shift” is in order. “Insurers need to see technology not as separate from their business but as part of their business,” he says. “IT is still a dirty word in the London market, where it is seen as the service organization that fixes the computer when it is broken, whereas IT can provide value that is integral to their product. Market demands will change that. Everyone wants insurance on the phone, and as that moves forward that will be a big engine to drive technological transformation.”