F E B R U A R Y 2 0 0 5 ACORD & XBRL US: White Paper XML Standards and the Insurance Value Chain
Acknowledgements The authors of this white paper wish to thank the Executive Review Committee for their participation, input and recommendations. Igor Best-Devereaux, CEO ereinsure John Hodge, Global Chief Information Officer XL Capital Barbara Koster, Chief Information Officer Prudential Financial Mel Kwassman, Financial Examiner Department New York State Insurance Michael Ohata, Director of Business Reporting Finance - Global Platforms and Operations Microsoft Alex Spencer, Chief Deputy North Carolina Department of Insurance ACORD & XBRL
Table of Contents Introduction...1 Goals and Objectives...1 Defining the Languages...2 XML: The Basics...3 XML and Document Standardization...3 The Insurance Value Chain...4 ACORD XML...4 XBRL GL, The Journal Taxonomy...5 Enterprise Business Reporting...6 The Full Data Flow...7 Improving the Data Flow: The Banking Industry...8 Improving Data Flow: The Potentials of Harmonization for the Industry...9 The Future...9 Future Benefits...10 Appendix A: ACORD...11 Appendix B: XBRL...11 Appendix C: Benefits of Standards...12 Examples of the Benefits Standards...12 Third Party Analysis of Standards...12 Benefits of ACORD XML...13 XBRL Benefits...14 Appendix D: Terms and Definitions...16 Appendix E: Website References...17 Appendix F: Recognition and Participation...18 Appendix G: Additional Information and Contacts...18 Figure 1: The Big Picture: XML, ACORD, XBRL...2 Figure 2 : Standards Organizations in the Financial Services Community...3 Figure 3: The Insurance Value Chain...4 Figure 4: ACORD Standards for Transaction Processing...5 Figure 5: ACORD and XBRL Data Field Mapping...6 Figure 6: Insurance Industry Data Flow...7 Figure 7: Banking System Old Process...8 Figure 8: Insurance Industry Data Flow...9 Figure 9 : Working Together...10 Figure 10 : Standards Provide Proven ROI I...12 ACORD & XBRL
Introduction Standards, from their paper form to EDI to the emergence of XML, are indispensable in facilitating communication not only among organizations within the insurance value chain, but also connecting internal and external systems. By creating a vocabulary that all participants can understand and agree to, information can be passed and understood quickly and without the time and expense used to interpret disparate tongues. This helps fulfill some of the needs for data within the industry. Data is a highly valued necessity requiring all members of the industry to invest time and money into data quality. Because insurance is such a highly interconnected business, this investment in data must include a commitment to collaboration and data transparency, to allow the transfer of information across the Internet and between disparate automated systems. Achievement of these goals does not come without a new set of challenges. For example, at the transactional level, data flows from the insured (individual consumer or company), to intermediaries, primary insurers, reinsurers, regulatory authorities, service providers, other financial interests such as mortgagees. The needs of each constituency vary and the insurance industry has struggled to satisfy these needs while finding ways to standardize the data so that it can move seamlessly across the insurance value chain. To that end, several distinct organizations maintain and implement standards for the insurance industry, each focusing on their own segment of the overall business process including ACORD (Association for Cooperative Research and Development, XBRL (extensible Business Reporting Language), and NAIC (National Association of Insurance Commissioners), HR-XML (Human Resources XML Consortium) and MISMO (Mortgage Industry Standards Maintenance Organization). The goal has been, not only for ACORD and XBRL but for an array of standards-setting bodies, to work together and examine the potential to harmonize their standards for the benefit of all. ACORD, the insurance industry s global standards organization, began with the introduction of standard forms for the insurance industry in the 1970 s. By 1999, ACORD started migrating its body of forms and EDI standards to XML. Today, ACORD provides standards for paper and electronic forms as well as for data stored as XML. From the transactional and processing level to the back office, ACORD remains the developer and maintainer for these standards. From the back office outwards, the XBRL standard constitutes the XML standard for enterprise business reporting to a variety of stakeholders, including regulatory authorities, analysts, and investors. The XBRL standard allows the creation of agreed tags for the exchange of business reporting information. These tags can be created collaboratively or developed privately by an organization like a regulator. The XBRL US organization, representing constituents from the corporate reporting supply chain providing information to the capital markets, has been collaboratively developing XBRL tags since 2001 and established an insurance working group called IGIS (Insurance GAAP Insurance Statutory) in 2003 to address the enterprise business reporting needs of the insurance industry. ACORD and XBRL US are distinct yet compatible organizations that provide essential data standards to the insurance and related financial services industry. Goals and Objectives of the White Paper In general, both ACORD and XBRL worked together to create this document in the hopes that it will serve as a launching pad for more in-depth examinations of the potential data standard links or handshakes between ACORD XML on the operations layer and XBRL on the enterprise reporting layer. The document also specifies the discreet areas where ACORD and XBRL participate within the data flow. By documenting, side by side, the specific roles each plays within the insurance industry, it will alleviate some confusion that has been brought to both organizations attention. First Step One of the main objectives of this document is to explain how ACORD and XBRL function within their own realms as well as how they can work in conjunction to better move data across the insurance value chain. This white paper is the first step in an ACORD & XBRL 1
exploratory venture. It may, in fact, promote more discussion and questions than it answers. However, this is essential for the industry and for improved data flow. This paper by no means has all the answers. Harmonization Finding harmonization between ACORD XML standards at the business operational level and XBRL standards at the internal enterprise business reporting level is another potential outcome of this venture. This linkage would form a common data set that could create the standard for moving this type of information across the insurance value chain. In addition, these harmonized data standards can be used by insurance companies within their internal business reporting processes to help improve controls and facilitate compliance with the Sarbanes-Oxley Act (SOX). Issues, Regulations, and Data With the industry as a whole dealing with new demands on data such as Sarbanes-Oxley, corporate governance, risk management, and internal controls and management, there is a clear need for improving how data is received and moved. To facilitate this activity, whether you are a carrier, regulator, reinsurer, solution provider, distributor, or other, establishing a common standard for communication and naming is essential. The elimination of redundant data entry, data interpreters and converters, manual intervention, and a host of other activities is needed to create this improved flow among all partners. Outstanding Issues Many issues are raised when exploring the free flow of information. Confidentiality, security, and proprietary data are just some of the obstacles which must be addressed. However, at this time, we are still taking our first steps. This paper raises these issues which the organizations and the industry will tackle as work progresses. Potential Benefits The potential benefits of this effort are great. This handshake of standards could lead to improved data quality, increased access to data, and increased opportunities to automate, further facilitating communication and increasing overall efficiency. In addition, harmonized standards could be leveraged by companies to help reduce the cost of their ongoing compliance efforts associated with Sarbanes-Oxley. Defining the Language ACORD XML and XBRL each have distinct roles in a world where we can systematically structure data, transactions, and reporting on a common platform. Both ACORD and XBRL use XML as a foundation for their specific standards. What ACORD and XBRL provide are the XML vocabularies, or taxonomies, specific to that segment of the value chain. ACORD provides the forum where the industry agrees upon the data set needed for transaction processing for the insurance industry the common names and definitions. Where the insurance industry requires data names and definitions specific to another industry, such as communicating insurance information to lenders, we look to that industry s consortium. For example, MISMO (Mortgage Industry Standards Maintenance Organization) should look to ACORD for the attributes of a policy number or coverage. Figure 1: The Big Picture: XML, ACORD, XBRL Similarly, the XBRL International organization provides this same service for enterprise business reporting in the insurance world. By developing enterprise business reporting taxonomies like US GAAP (US Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards), jurisdictional users of XBRL technology, such as the XBRL US organization and the IASCF (International Accounting Standards Committee Foundation), fill a niche outside of the processing world of the insurance industry. They enable companies to tag each data element in their enterprise business reporting and/or financial statements in a consistent manner. ACORD & XBRL 2
XML: The Basics XML is a universal format for data on the web and is maintained by the World Wide Web Consortium (W3C), the Internet standards body that is responsible for HTML and a wide range of other Internet protocols. It provides a framework to develop tags that identify data elements (i.e. a schema) and establish the relationships between multiple data elements (a data model or vocabulary ). It is called extensible because it is not a fixed format like HTML (a single, predefined markup language). Instead, XML is actually a metalanguage a language for describing other languages which lets you design your own customized markup languages for limitless different types of documents. XML can do this because it's written in SGML, the international standard metalanguage for text markup systems (ISO 8879) (from W3C, http://www.ucc.ie:8080/cocoon/xmlfaq). The promise of XML was its extensibility for supporting schemas and definitions of vocabularies. Using XML as the foundation, a variety of industries have created or have started creating standards for industry-based XML use. For the insurance industry, ACORD and ACORD XML provide the standards at the processing and transactional level. Enterprise business reporting, not only for the insurance industry but also for other industries in general, is maintained by XBRL ACORD & XBRL 3 Figure 2 : Standards Organizations in the Financial Services Community XML and Document Standardization The insurance industry has long recognized the importance of document standardization. However, until XML, no tool has been useful for the exchange of information within documents. This has become critical in light of dramatic changes in the Internet environment. With the emergence of such technologies as Web Services, information exchange has been moved from the document level to the data level. This means that individual fields on forms, or concepts in a report, can be extracted, analyzed or used in other business processes. They are no longer locked into a document. Information can be instantly extracted and re-used in analytical or reporting software without the need for manual searching, copying and pasting or re-keying. The reason information can move from file to file instead of from file to hands to file is the use of the universal language, XML. XML uses tags to describe and provide context for each piece of data and text so that it can be shared and processed by disparate types and brands of software, regardless of which software sends or receives the information. These tags are generally grouped into one of a growing number of vocabularies, which are dictionaries of terms and the relationships between terms that have universally agreed definitions. Applying XML tags to data enables direct communication between all software,
promoting instant information accessibility and usability, regardless of whether information is stored in a document or in an application. The Insurance Value Chain In order to analyze how data flows through the insurance value chain (figure 3), we have broken the chain into four components: Business operations - Comprises the individual, daily transactions that occur in the ordinary course of business. Internal enterprise business reporting - Entails the aggregation of the individual transactions for analysis within the company. External enterprise business reporting - Relates to the aggregation of individual transactions for reporting outside of the company, usually in accordance with some standard (i.e. standards set by the SEC, IRS or other regulators). External investment and lending analysis - Involves the analysis by third parties of information externally reported by a company. ACORD XML is designed to operate in the business operations cycle. XBRL for enterprise business reporting is designed for external enterprise business reporting and external investment and lending analysis. The XBRL general ledger is designed for internal enterprise business reporting. The goal is to link the ACORD XML at the business operations level with the XBRL at the internal enterprise business reporting level. ACORD XML ACORD XML standards focus on the operational and transaction-processing standards for the insurance industry from origination by a customer and/or agent through the carriers and reinsurance companies to insurance regulatory reporting. Data standards, either paper or XML, are used throughout this process. This is where, for more than three decades, ACORD has maintained and implemented standards to facilitate this communication. ACORD XML is used to expedite this system-to-system communication. As the figure 4 shows, transaction information flows among a variety of organizations including intermediaries, insureds, insurance and reinsurance companies that process the information. Initially, all constituents Figure 3: The Insurance Value Chain ACORD & XBRL 4
Figure 4: ACORD Standards for Transaction Processing feed the data to the insurance company via the transaction cycle. The data is then fed from the insurance company back into the transaction cycle or on to the external enterprise business reporting cycle. The XML Standards shown above are maintained by ACORD. ACORD maintains the XML standards for Life and Annuity, Property & Casualty, Surety, Long Term Care, Disability, and Reinsurance for Life and Property & Casualty operational communications. ACORD also maintains the EDI (electronic data interchange) standards to enable agency management systems and carriers to upload and download large amounts of information from each other. In addition to the XML standards, ACORD maintains both paper and electronic forms which will also provide XML capabilities in the near future. ACORD XML standards are created, developed, and voted upon by its membership which includes carriers, agents, brokers, distributors, and solution providers. ACORD, as an entity, maintains these standards and provides the forum for development and works with the membership to foster implementation. XBRL GL, The Journal Taxonomy XBRL GL, the Journal Taxonomy, is an extensible standard designed to represent the data fields found in a typical accounting system. It has robust and detailed ways to represent general ledger accounts; resources consumed or used, identifiers for the parties engaged in the transaction, and links to the eventual reporting summary fields. This means that transactions that look different can all be transformed into a common data format by mapping from the unique format of individual incoming data types to the common format of XBRL GL. XBRL GL s modules include: a core module of data fields common to all industries and jurisdictions, extensions for jurisdictions (e.g., US/UK Advanced Accounting), extensions for special needs (Multi-currency, Advanced Business Facts), and extensions for industries. In the case of insurance industry transactions, it is possible for all relevant ACORD XML transaction sets to be mapped to the XBRL GL (figure 5.) It is anticipated that such a mapping will be completed as part of a future collaboration between ACORD and XBRL US. Transforming data to a common format has many possible benefits. First, in today s environment of increased concerns over internal control, a common data format allows the creation of a single, unified and standardized audit trail. With XBRL GL as a basis for a standard audit trail, information about the source document (such as links to an online document retention system) and eventual summarization (such as an XBRL report- ACORD & XBRL 5
Figure 5: ACORD and XBRL Data Field Mapping ing taxonomy element for summarized, aggregated and filtered reports) can be maintained. XBRL enhances reporting capabilities by allowing drill-up and drilldown or drill-around functionality. Moving information from one system to another for data consolidation, migration, or just to avoid manual reentry is facilitated as well. For insurance companies in the future, leveraging the combined functionality of ACORD and XBRL GL enables greater interoperability of transactional ledger level data which enhances a wide variety of enterprise operational, performance and risk assessments. Enterprise Business Reporting Many insurance companies prepare reports in accordance with Generally Accepted Accounting Principles (GAAP), Statutory Accounting Principles (SAP) and other externally and internally mandated principles such as for income taxes, operational, performance and risk assessments. The regulated nature of the insurance sector increases the reporting requirements relative to companies operating in other less regulated industries, such as manufacturing. Leveraging information standards (i.e. ACORD, XBRL) enables insurance companies to standardize and therefore automate many of these externally mandated (GAAP, SAP, Tax) and internally mandated (operational, risk and performance) reporting processes. The use of consistent enterprise wide information standards articulated in the XBRL interoperable format transform an insurance company s internal information environment from a series of disparate systems and sub-systems into a more seamless network; information silos no longer exist. Data enters the system ready to re-use and moves more accurately and reliably between operational areas and from transaction systems into reporting systems. As the XBRL format becomes more pervasive across software applications, both external and internal analysts will interact with XBRL exactly as they interact with business data today directly through their desktop and analytical tools. XBRL taxonomies allow desktop tools to automatically pull requested business information directly in upon request. Analysts can work directly with XBRL, adding additional data points and analysis conclusions as they go. XBRL promotes faster turnaround between events and decisions and enable managers to expand the scope of their analyses to incorporate data related to key performance indicators that were difficult or impossible to track before. For internal analysis purposes, they may rely upon ACORD definitions such as premium, rating basis, incurred loss or others such as customer penetration, claims ratios, and asset quality. This enterprise reporting environment will result in fewer resources applied to data aggregation and manipulation with more applied to value added analysis. To facilitate increased efficiencies for external reporting ACORD & XBRL 6
purposes, the XBRL US - Domain and IGIS are developing a U.S. GAAP taxonomy for insurance companies. A public draft of the insurance GAAP taxonomy was released in 2004. This taxonomy will allow insurance companies to more efficiently prepare their external GAAP financial statements. Business information formatted in this interoperable format standard adds to the transparency for reported information; because investors, regulators, and rating agencies will be better able to more efficiently consume the company s reported information. As XBRL increases the efficiency of information production and consumption, regulators and intermediaries around the world are beginning to leverage it for their market segments. The U.S. Securities and Exchange Commission (SEC) has recently announced that it will seek public comment on the cost and benefits associated with tagged data. The SEC is also considering a proposal to accept voluntary supplemental filings of financial data using XBRL. This proposal, if accepted, would allow registrants to submit voluntary supplemental filings in XBRL for the 2004 calendar year-end reporting season. In addition, the National Association of Insurance Commissioners (NAIC) has developed an XBRL Study Group to further understand and explore how the NAIC and state regulators might utilize the XBRL standard. The Full Data Flow From individual transactions to the financial statements, ACORD XML and XBRL standards should sit at the hub of an insurance company s data flow. Having such standards at the hub will help an insurance company effectively and efficiently pass data accurately to all of the players within the insurance value chain. This is reflected in Figure 6. For internal reporting purposes, information standards provide a range of benefits described in the next section. Standardization of information specific to internal Figure 6: Insurance Industry Data Flow ACORD & XBRL 7
reporting processes (e.g. standard chart of accounts) provides: Increased access to greater details and levels of information. Lower costs of production, distribution, consumption, and analysis. Enhanced controls through the greater access to data. Lower control costs as data can be moved to the control rather than vice versa. Accelerated frequency of production and analysis processes. Today, financial data is kept on a variety of disparate systems and spreadsheets through out an insurance company. This financial data flows through the organization in variety of ways including email. Controls are necessary to ensure the integrity of the financial data as it passes through the organization. In the future, ACORD XML and XBRL tagged data will help an insurance company ensure that its data flows throughout its organization in a more controlled manner. Once data is tagged, it is less susceptible to clerical error or manipulation. When internal data is tagged in an interoperable manner and is therefore highly portable, it influences the nature and application placement of controls (e.g. more likely to apply monitoring controls) which is particularly relevant in helping a company improve its internal control environment and manage the ongoing cost of compliance. Improving the Data Flow: The Banking Industry The banking industry is in the process of updating its Call Report process to leverage some of the benefits of commons data standards and XBRL. Under the Old Process (figure 7) a bank would submit a variety of Call Reports to the different federal agencies that regulated it. Under the New Process (figure 8) a bank would submit one Call Report to the Federal Financial Institutions Examination Council s (FFIEC) clearing house, which in turn would pass the information onto the various regulators through the use of XBRL and web servicing. This new process is made possible by the various regulators agreeing on the basic information that each needed. Once the information standards were determined, XBRL was able to provide the standards to transport the information so each of the regulators will be able to use the information within its own agency. This also requires a reengineering of the systems as well. This new process represents a big plus for the banking regulators. Today, it takes between 60 to 75 days to receive, validate and publish the Call Report filings. It is anticipated that it will only take 2 days under the new process. This reduction in processing time will result in big cost savings. The new process is expected to save the regulators $26 million dollars over the next 10 years. Figure 7: Banking System Old Process ACORD & XBRL 8
Figure 8: Banking System New Process Improving Data Flow: The Potentials of Harmonization for the Industry So what does harmonization mean for the insurance industry? For ACORD and XBRL, this is an area to be determined. The extent of harmonization has yet to be explored. Discussions and meetings, focus groups, technological input, and business input will direct the future activities and explorations. The focus remains on improving the communication flow from operations to accounting to actuarial activities. In some cases, harmonization may mean agreeing upon common data names and definitions. In other cases, the same name for an element may have different definitions in the ACORD and XBRL data flows. Technology will allow us to use a common data name with different definitions without collision in the XML world this is normally referred to as namespaces. The Future The future is quite clear in some respects. XML is and will remain for some time, the de facto language for transporting data over the Internet and among systems. Its acceptance and use throughout a myriad of industries proves its utility as well as its flexibility. ACORD and XBRL US show that a common language and a common vocabulary make these communications possible in a more efficient and cost effective way. ACORD and XBRL are committed to working together towards harmonization. Initiatives to familiarize our two communities with our respective standards and projects to identify areas where interoperability will create efficiencies for the industry will be a byproduct of this white paper. The exact approach to harmonization that will be needed will be identified through future initiatives. The naming conventions and architectural and business rules will surely vary between the two standards. We will look at opportunities to agree to common definitions, map between the two standards, create new taxonomies together, and agree on namespaces. However, it should be clearly noted that while the prospect for such harmonization and cooperation exist, numerous issues are being raised, such as privacy, proprietary data, and degrees of harmonization, that must be addressed by the organizations, their membership, and the insurance industry as a whole. This is a first step in what may be a complex and long road but always moving towards the overall vision of greater efficiency and improved communication is critical. As work progresses and both organizations receive industry input, these issues will be explored and solutions found. Also clear is that standards are an essential part of this XML communication process. Organizations such as ACORD & XBRL 9
Figure 9: Working Together Future Benefits Following the vision of harmonized data standards between ACORD and XBRL, many potential benefits would be possible. Today, the movement of data from operations to actuarial spreadsheets varies greatly. While standards and harmonization are far from a silver bullet to make this seamless and acknowledging that human intervention will be a part of this activity, there is the potential to make this process flow more smoothly. One possibility companies might be able to use these standards to move claim data tagged in ACORD XML to an actuarial spreadsheet used to calculated loss and loss adjustment expense reserves. The company s actuaries and management would then be able select the appropriate ultimate loss factors enabling the spreadsheet to calculate the loss and loss adjustment expense reserves. These balances could then be tagged in XBRL and fed to the general ledger for both internal and external financial reporting. This is but one possibility This same concept applies to the movement of data for risk management. During meetings with RIMS (Risk and Insurance Management Society), AIRMIC (Association of Insurance and Risk Managers), and other risk management personnel and associations, it has become clear that there is a need for moving the data more efficiently for improved analysis. In the future, it is possible that data flow will become even more important in light of the Section 404 requirements of Sarbanes-Oxley Act. Controls around the completeness, existence and accuracy of data are at the heart of the Section 404 requirement. Companies that were required to comply with this section by December 31, 2004 have spent many months documenting their financial reporting and transactional processes and internal controls. In many cases, these efforts have identified opportunities to strengthen controls and/or achieve greater efficiencies. While companies are looking to remediate the more serious internal control issues in the short-term in some fashion, they will likely not look to implement longer-term solutions for many of the process and control improvement opportunities identified as part of the Sarbanes-Oxley 404 effort until later. Companies should assess the potential for ACORD XML and XBRL solutions to help address these opportunities as they move forward. Creating and harmonizing standards for the insurance value chain is a difficult but worthwhile endeavor. However, this endeavor needs to be undertaken with an eye to adoption, where the success of the standards will be determined. In creating these harmonized standards ACORD, XBRL, insurance companies, regulators and other interested parties need to work together. A coordinated discussion of standards in an open forum, so everyone's voice can be heard and concerns addressed, will lead to a harmonization that everyone can embrace. This coupled with support from the regulatory community who are also actively following these processes and looking to enact standards in a timeframe respectful of the current regulatory demand on insurance companies will also increase the likelihood of success for the harmonized ACORD and XBRL standards. ACORD & XBRL 10
Appendix A: ACORD ACORD (Association for Cooperative Research and Development) is a non-profit insurance association whose mission is to facilitate the development and use of global standards for the insurance and related financial services industries. It is an objective, independent advocate for sharing information among diverse platforms. ACORD s goal is to provide standards and services that improve efficiency and expand market reach by: Reducing costs. Reducing duplication of work and ambiguous communication exchanges. Improving accuracy. Facilitating e-business. Supporting multiple distribution models. ACORD XML provides a foundation for real-time exchange of data among producers, insurers, rating bureaus, service providers and others. The specifications were developed and enhanced by ACORD Members. New developments are presented either as proposals for working groups and/or as proposed changes to future specification releases. The ACORD Steering Committees oversee the development of the specifications and determine which new working group proposals will move forward. ACORD is responsible for maintaining and implementing the standards for the transaction and processing side of the insurance industry including developing data tagging, models, naming conventions and schemas for transactional processing of life and annuity, long term care and disability, property and casualty and reinsurance. In addition to maintaining the standards in compliance with local, state, and federal requirements throughout the United States, ACORD also maintains the standards for some other global geographies and cross border transactions, such as subscription markets and reinsurance. Appendix B: XBRL XBRL (extensible Business Reporting Language) is the XML-based standard for identifying and better communicating the complex business information in corporate business reports. XBRL makes the analysis and exchange of corporate business information easier and more reliable. XBRL is a royalty-free, open specification for software and is being developed by a non-profit consortium consisting of over 250 leading companies, associations, and government agencies around the world. Anyone interested in applying XBRL to enterprise business reporting processes can receive a license from XBRL International. XML is an open standard that anyone can use, which has a potential downside: the entire purpose of facilitating direct data exchange will be lost unless the same tags, i.e., the same data definitions and contexts, are applied across supply chains. XBRL International is dedicated to developing and promoting XBRL standards to ensure that the consistency needed for direct data exchange is achieved. XBRL International is organized into various geographical jurisdictions. The XBRL US jurisdiction is charged with developing XBRL standards in the US. A working group within XBRL US called "US Domain" is responsible for developing XBRL taxonomies for US GAAP. A subcommittee of US Domain called "Insurance GAAP Insurance Statutory (IGIS)" is responsible for developing taxonomies for the insurance industry in the US. ACORD & XBRL 11
Appendix C: Benefits of Standards Even though the data needs of constituencies may be different throughout the insurance value chain, the importance of creating and implementing standards remains the same. There is a wide array of benefits for companies instituting XML-based data standards including: Cost Savings Increased Efficiency Improved Client Communications Decreased Errors Improved Analytical Capabilities Examples of the Benefits Standards Standards increase the likelihood that an integration between two disparate systems will be successful by reducing the number of interfaces required to communicate among systems, as well as, internally and externally eliminating the costs associated with building and maintaining translators. Standards reduce the time and cost of implementing interfaces to partners and vendors as well as among internal systems. Figure 12 : Standards Provide Proven ROI, Insurance CIO/CTO Pressures Priorities, Projects and Plans: 2003, Survey Results, Celent Communications, November 2003. Standards create a single vocabulary allowing all those involved in the insurance value chain to communicate efficiently and effectively and leveling the playing field linguistically. Communications flow can be achieved without interruption. Standards reduce data translation errors from independently produced interfaces and errors caused due to manual re-entry. Financial analysis will be improved as digital data can be more accurately and quickly consumed by analysts. Enterprise business reporting can be improved through the automated production of reports that eliminate errors caused by re-keying information. Third Party Analysis of Standards The true benefits of standards, particularly for efficiency and cost savings, are apparent and quantifiable. A 2002 Celent Communications analysis, ACORD XML Standards in US Insurance found the following: Some carriers report efficiencies on projects as great as 80%, however most can achieve or had already achieved integration efficiencies on the order of 20%-30% by using ACORD XML standards. A 20%-30% reduction in integration costs would reduce integration from 23% of new project budgets to between 15%-20%. If embraced universally, use of standards could save the industry over US$250 million in technology costs annually. Business units have seen efficiencies of 25-50% on subsequent integrations after adopting standards. Companies have seen efficiencies of 60% on integration with external technology vendors. ACORD & XBRL 12
Benefits of ACORD XML While the benefits of data standards and of XML in particular are true across all industries and across all domains within our industry, there are unique aspects of the insurance industry that result in particular benefits of the application of data standards at the transaction processing level. ACORD represents members from life, annuity, property & casualty, surety, long term care and disability, and reinsurance for life and p&c globally. ACORD members have worked to establish and implement these standards to better communicate data internally and externally. Partner to Partner Integration A central repository for the common data elements and agreed upon definitions are essential to an industry where collaboration with external business partners is key. The sharing of data across risk managers, independent and captive intermediaries as well as insurers, platforms, reinsurers and regulators loses meaning with each transaction, unless the common language is in place. ACORD has worked with all of the partners in the value chain to agree upon that language and establish the data standards. Internal Integration Of concern to the insurance industry is the need for disparate systems to communicate in order to complete a business process. The ability for a claims system to go out to a policy system to verify coverage and to ensure that the claim is correctly coded is essential to the smooth and swift settlement of the claim, reserving and accurate statistical coding and reporting to regulatory authorities. This shows the need for ACORD XML standards to communicate items such as claim number and policy number from system to system. Electronic Data Sharing The events of 9/11 and its ramifications to exposure location data highlight the importance of data quality and transparency. Carriers cannot receive exposure information in disparate and incompatible formats if they are to effectively identify aggregation of exposure across customers and lines of business. Reinsurers are demanding increased visibility into cedent risk portfolios for underwriting, audit and sustained profitability. This type of information cannot be successfully captured and analyzed in multiple formats across partners. ACORD data standards provide this common format and definitions needed for this extensive exposure analysis. Web Services Web Services are being used for real time integration throughout the insurance industry transaction processing cycle. Examples include: Integrating backend systems with an agent portal Communicating with service providers such as body shops, glass companies, hospitals Enabling transactions for reinsurance placement and technical accounting For real time communication with trading partners, ACORD standards have become essential for these processes. Document Repository Standards While there will never be a single repository for all risk related information, the need for consistency across data repositories is growing. ACORD XML standards were established to allow trading partners to share structured and unstructured documents and data stored in a variety of third party systems through brokers, regulators, and TPA s of all types. ACORD released version 1 of the Document Repository Interface Standards in 2004 to allow access to free format documentation for improved decision making. Improved Cash Flow Implementing ACORD XML standards has led to quicker transaction processing. This ultimately allows faster access to money premium payments, commission payments, claims payments. Global players need to have a standard that is adopted across the enterprise. Companies dealing in multiple jurisdictions whether states or countries have to deal with a myriad of regulatory and business requirements. ACORD XML standards have been implemented globally as well as locally to enable companies to speak the same language ACORD & XBRL 13
internally and then facilitate both current and future communications across companies and borders. XBRL Benefits Insurance companies can realize significant benefits by deploying XML standards, like XBRL, over existing internal systems, insurance companies can migrate more information production and consumption to the Web, eliminating manual processing and its costs. Current systems and software can understand and process XML enabled information, therefore, deploying XBRL standards for enterprise business reporting could facilitate the following efficiencies in the enterprise business reporting process in a relatively short time: Re-deploying resources from low value data shoveling tasks to those more meaningful to the business. Increasing data accuracy by minimizing the risk of manual transcription errors. Preserving data integrity through a hands free information environment and ability to more easily trace information directly to its originating source. Facilitating instant internal and external report creation at any time. Facilitating management access to more of the information resident in company systems directly through analytical tools for better, more informed decisions. Strengthening management controls by establishing direct information feeds from enterprise systems to monitoring processes. Facilitating the audit function by providing a better audit trail for each item of information. Based upon the above noted benefits, it is most likely that XBRL standards are going to generate positive change in the following areas: Preparation of consolidated management and enterprise business reports XBRL will streamline the consolidation processes for organizations that currently utilize reporting systems that are not on a common platform. This will result in both a more timely gathering process and will facilitate the re-use of the information for varying types of reporting and analysis. Uploading of information and reconciliation will be greatly reduced as XBRL draws upon a single source of data for multiple re-uses (i.e. financial statements, separate account reporting, tax returns, press releases etc). Enterprise business reporting applications XBRL will enable more timely and accurate internal/management analysis based upon single input of data across products, geographies, distribution channels, businesses processes, or any other specified and mapped criteria. Actuarial analysis XBRL will allow less costly, timelier and more accurate preparation of loss reserve analyses and other actuarial reports because XBRL is a common format that helps organizations to aggregate detailed information from disparate financial information sources (i.e. Schedule P, internal loss reserving, benchmarking among peers and across the industry). Credit analysis of reinsurers and other business partners such as MGA s XBRL will enable less costly and more real-time analysis of enterprise business information for assessing the financial stability of reinsurers and other business partners. Investment portfolio analysis XBRL will enable more timely and flexible enterprise business analysis of investments on both a portfolio basis and an individual investment basis. Elements of analysis include financial performance as well as non-financial measures and communications. Corporate insured risks XBRL will enable greater transparency for insurers regarding financial and business operations of their corporate insured entities and risks. Greater transparency can be utilized in the context of improved underwriting of new business and continuous monitoring of existing risks. Competitor analysis XBRL will enable tailored analysis of competitor financial and business information (including benchmarking) in a timely and efficient manner with resources redirected from information gathering to information analysis. ACORD & XBRL 14
Shareholder/analyst/regulatory tools XBRL provides a powerful platform for enhanced extraction and analysis tools for shareholders and other users, such as rating agencies and regulators. In addition to the above benefits that XBRL can provide to individual insurance companies, XBRL can help improve the regulatory process in the following ways: Statutory insurance taxonomies will allow state regulators to perform more cost effective, timely and comprehensive reviews of an insurance company s quarterly and annual filings. The tagged statutory data can be downloaded into audit software and used as part of the financial exams to add to the effectiveness and efficiency of the exams. References can be made from tagged data to other related documents (i.e. instructions) based upon the taxonomy. Validations are performed on the data elements by type and on formula calculations contained in the taxonomy. Increased flexibility in handling changes in information requested. More effective and efficient exams decrease the cost of regulation. Better regulation produces better value for insurance policyholders and better health for the industry. ACORD & XBRL 15
Appendix D: Terms and Definitions ACORD AICPA ARMIC HR-XML IFRS IASA IASB IASCF IGIS ISO Association for Cooperative Operations Research and Development (http://www.acord.org) American Institute of Certified Public Accountants (http://www.aicpa.org) Association of Insurance and Risk Managers (http://www.airmic.com) Human Resources XML Consortium (http://www.hr-xml.org) International Financial Reporting Standards (http://www.iasb.org) Insurance Accounting and Systems Association (http://www.iasa.org) International Accounting Board Standards (http://www.iasb.org) International Accounting Standards Committee Foundation (http://www.iasb.org) Insurance GAAP Insurance Statutory International Standards Organization. Information provider for property and liability risk. (http://www.iso.ch) Metadata Data about data. Metadata describes how and when and by whom a particular set of data was collected, and how the data is formatted. Metadata is essential for understanding information stored in data warehouses and has become increasingly important in XML-based Web applications. MISMO Mortgage Industry Standards Maintenance Organization (http://www.mismo.org) NAIC National Association of Insurance Commissioners Namespace RIMS SEC Schema Tag Taxonomy US GAAP Value Chain W3C XBRL XML A namespace uniquely identifies a set of names so that there is no ambiguity when objects having different origins but the same names are mixed together. An XML namespace is a collection of element type and attribute names. Risk and Insurance Management Society (http://www.rims.org) U.S. Securities and Exchange Commission A diagrammatic representation; an outline or model. An identification of a single or grouping of data elements that allows the definition of the element to accompany the specific piece of data. A set of tags used to relate items, defined by a schema and a set of linkbases US Generally Accepted Accounting Principles A group of companies or individuals working together to reach a common goal that benefits everyone. World Wide Web Consortium (http://www.w3c.org) maintains the general XML standards. extensible Business Reporting Language (XBRL) is a collaborative agreement of the business reporting supply chain on how to use XML to represent business reporting data. (http://www.xbrl.org) extensible Markup Language (XML) is an Internet-based standard for creating metalanguages, a tool for providing new tools to add structure and validation to documents and data on the web and is maintained by the W3C. ACORD & XBRL 16
Apendix E: Website References Primary Web Sites ACORD XBRL International IASA http://www.acord.org http://www.xbrl.org http://www.iasa.org Case Studies ACORD Case Studies http://www.acord.org/standards/case.aspx XBRL Taxonomy Insurance GAAP Taxonomy http://www.xbrl.org/us/fr/gaap/ins/2004-08-15/ us-gaap-ins%20summary%20page.htm System Demonstration XBRL Demonstration http://www.xbrl.org/xbrldemos Other Documents ACORD and XBRL White Paper Excerpt ACORD XML for Life Standards ACORD XML for P&C Standards ACORD Implementation Guides & Reports SEC Announcement on XBRL XBRL Web Services XBRL White Paper Corporate Reporting and the Internet http://www.acord.org/news/pdf/acord_xbrl.pdf http://www.acord.org/standards/lifexml.aspx http://www.acord.org/standards/propertyxml.aspx http://www.acord.org/resources/im_reports.aspx http://www.sec.gov/news/press/2004-97.htm http://www.nasdaq.com/xbrlws http://www.fei.org/rfbookstore ACORD & XBRL 17
Appendix F: Recognition and Participation Participants in the development and creation of this document were: Beth Grossman, Assistant Vice President, Industry Relations, ACORD Paul L. Horgan, Partner, PricewaterhouseCoopers; Co-Chair, XBRL US Insurance GAAP and Insurance Statutory Working Group (IGIS) Gary A. Wicklund, Executive Director, Capricorn Research; Co-Chair, IGIS, XBRL US Domain Working Group Member Michael Carroll, Communications Specialist, ACORD Eric E. Cohen, PricewaterhouseCoopers Past Chair, XBRL US Steering Committee Thomas Finnell, Partner, Ernst & Young Robert E. Lembach, Goldman Sachs; IGIS Member, XBRL US Domain Working Group Member J. Louis Matherne, CPA, President, XBRL International; Director, XBRL, AICPA Yossef Newman, Senior Manager, Assurance Technology and Innovation Team Deloitte; Vice Chair, XBRL US Domain Working Group Paul A. Penler, Ernst & Young; Chair, XBRL US Steering Committee Ray Pietrunti, Information Systems Specialist/Data Steward, MetLife Campbell Pryde, Partner, Risk and Advisory Services, KPMG; Chair, XBRL US Domain Working Group Appendix G: Additional Information and Contacts For additional information on this white paper, contact: Karl Best, XBRL-US, 201-938-3920, xbrlus@xbrl.org Beth Grossman, ACORD, 845-620-1700 ext. 421, bgrossman@acord.org For additional information on ACORD, contact: Beth Grossman, ACORD, 845-620-1700 ext. 421, bgrossman@acord.org For additional information on XBRL, contact: Karl Best, XBRL-US, 201-938-3920, xbrlus@xbrl.org ACORD & XBRL 18