ACORD Standards ACORD March 2006

Industry Trends

Is it the same old Insurance industry? Let’s look under the covers Bar is being raised Leaders are leading Fears of being left behind Talks of “leapfrog” Technology as an enabler/hurdle Web-services BPM & STP SOA and reusable components Enterprise Architecture Standards Looking at the stats only… tunnel vision – appears to be a typical recovery…. Same old insurance industry…we say no…. Here is what really is going on. Competitive landscape Changing demographics and customers demands Spitzer….. Smart legislation…TRIA renewal outstanding Risk management – Sarbanese Oxley And the readiness of technology has caught up. Wesbservcices, SOA, reusable… Carreirs are proving they can be sustain profitable growth…. Hearing Different conversations Left behind Leap frog Leaders and laggers…. No more followers Carriers – seeing carriers leveraging/deploying technology to sustain competitive advantage From a vendor – seize the opportunity…carrier buying software Carrier Customers Vendors Competitors Regulatory Environmental Economic Source: Tower Group Source: TowerGroup

Strategy: Run – Grow – Transform? GROW (Strategic) TRANSFORM RUN (Tactical) THESE ARE ENTERPRISE CROSS - SILO AND FUNCTIONAL ACTIVITIES THESE ARE ENTERPRISE CROSS - FUNCTIONAL ACTIVITIES THESE TEND TO BE SILO - BASED ACTIVITIES Free up investment dollars Improve business focus New/quicker business models Accelerate redesign efforts Redefine relationships Change capacity dynamics Shorten or change the dynamics of life cycles Resource availability Reduce or control operating expense Better capabilities Create or enter new markets or renewed markets Functions and tasks are managed Enable shared risk/reward models New business models REACT TRANSACT ADAPT Source: Gartner

Business Growth: Strategic Innovation and Transformation Strategic Flexibility + Operational Adaptability Value Creation New market demands New regulatory demands New customer demands Exploit strategic opportunities Sustainable profit and value Exploit technology (standards, SOA, web services, etc)

Data as a Strategic Asset Risk Data Pricing Underwriting Risk Management Customer Data Behavior Financials Operational Data Operational Efficiency Enterprise Data Model Usage in US Insurance Do not need 12% In Use Currently 25% Do not have, but need one 32% Under Development 31% Source: Celent’s 2004 US Insurance CIO/CTO Survey

“Straight Through Processing” INPUT OUTPUT STEP A STEP B STEP C DECISIONS PROCESSING ROUTING Automation Keys Automated decisioning Automated workflow Integrated production systems Integrated external data sources Integrated internal data Standards Benefits Reduce errors Improve turn-around time (service imperative) Improve consistency Source: Celent

Frictionless Communication Critical element in ease of doing business for insureds and distributors Key differentiator Explosive growth of agent portals over last five years Growth of data standards Agent/ Broker Agent/ Broker Insured Primary Insurer Reinsurer Claims Service Provider Requirements Vendor Source: Celent

Competitive Advantage Via Technology Service Risk Mgt. Efficiency Frictionless Communication Straight Through Processing Data As A Strategic Asset Source: Celent

Enterprise Architecture: Best Practices Bridging silos into shared services Enterprise Architecture Services D E P O S I T C R A Y M N H I G T E C N O L Y D A T A P P L I C A T I O N S T A N D R Traditional Apps Shared Apps Common Apps Bridging the gap between what is perceived to be two disparate institutions At the end of the day it’s all about the customers and your members needs. Unique Apps Guiding Principles Source: TowerGroup

Architectures Break Silo Boundaries Determine the value of people, process, data and technology Make IT investment strategic and more responsive Business Application Data Infrastructure Outline the important business functions and processes Map the relationships of software applications to each other Detail where the data and information is kept and how it is used Diagram the hardware and networks to support the START HERE Source: TowerGroup

Impact of Legacy Systems Legacy System Effects 67% Slows new product introduction 78% Too difficult to integrate with new 56% systems 67% 33% Unacceptably high maintenance costs 78% Inhibits data mastery/business 44% intelligence 67% 39% Prohibits workflow improvements 67% 22% No negative effects 22% Large Midsize Source: Celent 2004 CIO Survey

Industry approaches to change Companies often err by taking a systems-focused approach to solving process problems Companies tend to look first at what legacy systems they need to modify, update, or replace, but that is a very vertical, siloed focus vs. Looking at the problem in terms of what needs to be fixed in the process It’s all part of not just having process-savvy systems but being a truly process-savvy organization http://www.nationalunderwriter.com/tech/news/viewFeatures.asp?articleID=1003

Future Business Perspective: Efficiency & Effectiveness ACCESS View of data and control of process Reduced Complexity Better Decisioning ENABLING INFRASTRUCTURE PROCESS Once & done data entry STP & Exception Processing Predictive Analytics execution SERVICES Robust rules engine Robust workflow/process manager Smart Forms DATA Operational Data Analytic Data Third Party Data Source: TowerGroup

Open access to core technology assets Insurance Value Chain of: Reusable Assets, Services, Process & Data - SOA STP ACCESS DATA Open access to core technology assets ENABLING INFRASTRUCTURE (interoperability) Simplistic view insurance value chain as access, process, services, and data - pipes to connect one to the next Running in pipes are rules, data, and content Shared and accessed throughout the enterprise – internal & external – sounds simple – my vendor clients would be out of business! Fundamental: Data stores are open Messaging protocols follow standards Business processes have common engines Portals offer easy access Technology is available to drive this effort Complications of “choke points” – breakdown or backlog of activities – most often it’s either – process, content, or data Portals, Dashboards Open & flexible data stores -data standards- Role-based view of information and data Standard messaging protocol Business Process Mgmt., Content Mgmt., Rating, Analytics, Rules engine Business components and rules Reusable services and information access STP WORKFLOW MANAGER SERVICES PROCESS Exhibit #: E1 Source: TowerGroup

Current Model of Insurance Underwriting (Simplified View) Risk Evaluation Third- Party Data Marketing Legacy Analytics Pricing System Business Intelligence Product Development Legacy Closed Claim Review Product Development Legacy Policy Admin System Product Creation Rating Engine Rating Engine Policy Admin System Policy Admin System Policy Admin System Third- Party Data Underwriting System Policy Admin System Policy Admin System Contact Center Quote – Rating/Pricing Policy Admin Operational Functional Ad Hoc Source: TowerGroup

Future Model of Underwriting Technical Components (Simplified View) Underwriting Desktop View Data Capture Customer View Transaction View Exception View Portfolio View Performance Scorecards Market View Process Managers Enterprise Content Management Business Trans. Workflow Manager Event Manager Process Manager Document Management Records Content Engines and Tools Product Configure Rating Engine Business Rules Analytics Data Integration BI Tools Data Layer Transaction Legacy Financial Data Mines & Marts Warehouse CRM External Source: TowerGroup

Assessing and Improving Legacy Systems Addressing the legacy system Replace? Re-platform? Componentize? Consolidate? Extend or Wrap? BPM Legacy system Standardizing data and processes across legacy systems Rules management? Data standardization? Web services? Enterprise architecture? Legacy system Legacy system Standards Legacy system Insurers must take an active role in assessing the legacy system against current and future business requirements. Each legacy system should be evaluated independently. Based upon its age, source (in-house or vendor-created), size (can it support rating, claims, etc.?), reliability, cost (especially for maintenance), and flexibility for change. The system should then be compared with the corporate enterprise architecture to ensure architectural compliance. Only then can you make a decision regarding the longevity of the system and whether it should be replaced, extended, re-architected, or componentized. Whatever the outcome, you must be sure the system can support business change and be cost efficient to run and maintain. Systems should be consolidated, as appropriate. Second, enterprise legacy issues should be assessed. Insurers should begin to assess systems management and standardize process and rules across the legacy network. Tools such as Web Services and XML can help leverage legacy system information throughout the enterprise. Recommendation: Look for flexibility, agility, scalability, efficiency, compatible, standardized and open. Ensure that systems can meet future business requirements. Source: Gartner

Distribution: Enablement Strategic CRM View Source: Tower Group

Distribution: Multi-channel support Insurers will need to support data interchange with multiple counter-parties Standard messaging and data formats can reduce burden of custom integration for multiple user interfaces/client systems. XML Engine Distributed Transaction Engine Core System Agent Extranet Agency Management Systems Shared Services Source: Celent

Economic Policymaking ACORD and XBRL – Interoperability for the corporate reporting supply chain ACORD XBRL Ledger XBRL External Reporting Business Operations Internal Financial Reporting External Financial Reporting Investment, Lending, Regulation Economic Policymaking Processes Participants Auditors Trading Partners Investors Financial Publishers and Data Aggregators Regulators Software Vendors Management Accountants Companies Central Banks

Initiatives Cited As High-Priority For 2005 13% 25% 38% 24% 12% 29% 18% 6% 35% Point claims solutions Wireless for sales or other Transactional agent portal VRU Data integration hub Business rules engine (BRE) Voice over IP Voice/data/video convergence Policy administration system Underwriting system Disbursement/payments Commission mgmt/EIM Business process management (BPM) Document/content management Network security Web services/service-oriented architectures E-Billing Sarbanes-Oxley compliance Informational agent portal Interface with agency management systems Transactional policyholder portal Contact center mgmt. Imaging Single sign-on HIPAA compliance ACORD XML Business intelligence/reporting Email security Electronic signature L/H P/C Red indicates Initiatives Using ACORD Standards

Web Services and SOA: Best Practice for Innovation Source: Insurance CIO/CTO Pressures, Priorities, Projects, and Plans: 2004 Survey Results (Jan 2005)

Web Services and SOA: ACORD Standards as the Enabler Services Are Based On ACORD XML 100% 80% 60% 40% 60% 46% 20% 40% 25% 0% Large L/H Midsize L/H Large P/C Midsize P/C Source: Insurance CIO/CTO Pressures, Priorities, Projects, and Plans: 2004 Survey Results (Jan 2005)

ACORD Strategy

Business Adaptability, Flexibility and Agility Market Direction Corporate Strategy Measurement And Control Data and Info Management Technology Work Processes Activities Tech and App Architecture Functionality Embedded Culture Target Business Scenario Transformational Tools and Infrastructure Common Vision Functional Silos Operations Administration Macro Cross-Functional Process Change Management Human Capital Comp and Review ACORD Standards Enable the Adaptability Doing Work Supporting Work Source: Meta Group (now Gartner)

Why Standards? Business Issues Proving ROI Analysts: Celent: $250 million savings per org Not a Single Quarter Investment Initially more expensive/time consuming Ever-decreasing Incremental Cost Higher Initial Cost STANDARDS Ever-increasing cost Custom Interfaces Initial Lower Cost

Type of ROI Produced from XML Initiatives at YE03 Percentage of Insurers BY ROI Derived from XML Projects Source: Gartner Source: Gartner, April 2004, EMEA Mar 2004

Case Study: Manulife Canada Has Used ACORD Agent desktop integration (1999) In-force agent policy feeds (2000) Commission feeds (2001) Administration system consolidation (2004) Web Policy Inquiry (2005)

Canada: New Business New Business System Financial Planning Sales Illustration Electronic Application ACORD OLifE Agent Contact Management System Admin System

Japan: New Business Upload New Universal Life product introduction (ManuFlex) Very tight schedule Used two [competing] North American packaged solutions: Illustration and application system (Navisys) Life Administration system (Ingenium) Used ACORD XML as the integration standard ACORD XML helped us Reduce the time taken to write interface specifications Reduce the effort required to get the packages to work together

B2B Challenges in China Large number of trading partners 100,000 retail banking branches, 50,000 post saving offices, 50,000 travel agencies, 1,5000 insurance agencies and brokers High performance required for large volume real time straight through processing (STP) transaction For instance, ICBC demands for 15,000 transactions per day and maximum request response time must be less than 5 seconds Various integration requirements Various networking connections, communication protocols, business protocols, data standards Full scope of insurance business processes New business submission, customer information inquiry, policy administration, financial account changes, etc Legacy system integration Policy administration, commission management, financial systems, etc Fast response to market dynamics

ACORD Standards in Actions – Pacific Life Air Ticketing Center Pacific Life E-Distribution Management System Policy Administration System Travel Agency Internet Post Saving Offices Commission Management Customer Information File Captive Agents 25,000 captive agents 3,500 travel agencies 500 post saving offices Pacific Life

ACORD Standards: Best Practice ROI External Percent Savings Add one Distribution Channel 20% Add one Business Partner or Service Provider 50% Setup one new Distributor 60% Do not setup a proprietary Interface – rather use ACORD standard message interface 100% License and appoint one agent Add one external interface 30% Internal Submit and quote one policy Underwrite one policy Process one claim Perform one policy service transaction Reinsure one policy Add one internal system interface Do not add one data dictionary/data model used internally Conversion of M&A with standards based systems Compliance violation Varies Data Transparency and SOX compliance

$ ACORD Standards Framework Expansion Strategic Business Value Future: Standards for SOA, Web Services and Best Practice Metrics Use of Industry Standard Process Models and Business Service Definitions Strategic Business Value ACORD XML (P&C, Life, Reinsurance) Use of Standard Messages ACORD Forms Use of Industry Standard forms ACORD Data Dictionary and Models Use Standardized data $ Level of Industry Standards Adoption

Business and IT Strategy: Four Pillars of Focus Business Strategy Data Business Applications and Components Business Process Strategy Application Integration Strategy Infrastructure Strategy Data Strategy PM IT Strategy

Current ACORD Standards Life & Annuity Life Annuities Health Group Lines Reinsurance Global Property & Casualty Personal Lines Commercial Lines Surety Global Reinsurance P&C Reinsurance Large Commercial Lines Global EDI XML Forms Data Model EDI XML Forms Data Model XML Forms Cross Program Standards DRI Standard (Document Repository Interoperability) SOAP Framework

Current Challenges Inconsistent deliverables Lack of deliverables Impacts enterprise implementations Duplicate support Impacts interoperability, transparency and consistency Impacts ability to effectively work with other standards Lack of core components to work with UN/CEFACT, SWIFT and ISO Multiple dictionaries Lack of deliverables Single business dictionary Data model for PCS Common business messages

ACORD Standards Framework

ACORD Industry Standards Framework expanding to support insurance industry needs Cross Domain Process Standards Provides the Business Context or a list of standard business processes Underwriting Claims Channel Management Product Portfolio Mgmt Inventory of ACORD Process Service Definitions Provides the Business Services performed and process inputs and outputs Supported by a Common Data Architecture comprised of: Business Term Dictionary Contextual Data Model = Listing and definition Of things that are important to the business. User = Business Strategy Conceptual Data Model A Semantic Model = Entity = Business Entity Relationship = Business Relationship. User = Business Owner Logical Data Model A System Data Model = Entity = Data Entity Relationship = Data Relationship. User = System Designer Technology Layer supported by XML Messaging and Forms Standards By separating the technology layer, investments in standards stand the test of time as you swap out the technology but not the standard Life & Annuity XML/EDI/Forms P&C/Surety RLC XML/Forms Plans/Scope not yet defined

ACORD Standards: Enable Transformation and Interoperability

Enterprise Architecture - Examples ManuLife MetLife NYLife Allianz - Fireman’s Fund St Paul Travelers The Hartford Swiss Re XL Re Aon Alea

Case Study: Fireman’s Fund SOA Architecture Turn mainframe apps into set of networked services with real-time transactions to provide: Standard way for over 3,000 independent agents to interact with them Modernize the IT infrastructure to be more manageable, flexible and adaptable Creates Straight through processing (STP) and Single entry multiple company interface (SEMCI) Functions of multiple legacy policy admin and billing systems into reuseable components using ACORD standards Create new apps with these components

Case Study: MIB – Medical Information Bureau Web Services Architecture Solution Convert all legacy systems to web services using ACORD standards Eliminates batch processing and provides real-time STP Reduces time for carriers in the issue process Reduces costs

How Manulife Canada Has Used ACORD Agent desktop integration (1999) In-force agent policy feeds (2000) Commission feeds (2001) Administration system consolidation (2004) Web Policy Inquiry (2005)

ACORD Membership: Leading the Industry P&C Forms 1980’s AL3 (ACORD’s P&C EDI standard) 1998 XML for L&A and P&C Life Reinsurance 2001 P&C Reinsurance EDI & XML L & A Forms Fillable Forms 1990’s AL3 Implementation 1996 Life & Annuity Standards 2005 + Business Process Services PCS V2

ACORD Member Best Practices Business and IT strategy to include ACORD standards as core component ACORD standards as part of IT operating and project management principles Oversight executive committee actively promote adoption, participation and involvement Establishment of Standards Officer in the organization RFI and RFP should include ACORD standards requirements Solution provider contracts require ACORD standards Incorporate ACORD standards as part of SLA’s with outsourcers and shared services Incorporate ACORD standards in data warehouse and enterprise architecture Trading Partner and third party agreements should include ACORD standards as part of agreement

Industry Analyst View “Maximizing the use of standards is how grown-up organizations operate.” — Marc Cecere, Forrester   “Standards are crucial to enable real-time transactions with internal and external users.”  — Kimberly Harris-Ferrante, Gartner “Use of ACORD Standards is central to establishing an overall enterprise architecture.” — Deborah M. Smallwood, TowerGroup “Web services using data standards will have an advantage.” — John Flynn, Gartner "ACORD Standards are a key tool for insurers to improve their business capabilities" — Matt Josefowicz, Celent “Without data standards like ACORD, industry improvement efforts will fail.” — Todd Eyler, Gartner

ACORD Standards Cartoon

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