By Praveen Nagpal - Head of Development at ChainThat
For those who are new to insurance industry standards, ACORD is to insurance what SWIFT is to financial services. It is a non-profit organisation which provides a peer to peer AMS (ACORD Messaging Service) standards to enable data standardisation between the trading partners and also provides reference implementation guides in various insurance domains. The domains typically covered are GRLC (General Reinsurance and Large Commercial), P&C (Property and Casualty), LAH (Life, Annuity and Health) and cross domain document exchange services like DRI (Document Repository Interface). As per the numbers reported on its website, the standards are being used by more than 4000 participating organisations in 20 countries with 6 million annually recorded message transactions.
Here, I am looking specifically into the General Reinsurance and Large Commercial (GRLC) domain. In this domain, there are implementation guides for the business processes, which cover the messaging protocol along with the data dictionary:
- EBOT (Electronic Back Office Transaction) process – covers the accounting and settlement business process starting with raising the payment and ending with the financial settlement
- ECOT (Electronic Claim Office Transaction) process – covers the claim movement along with its accounting and settlement
- Placing- covers the risk placement process
As expected, the adoption of these standards have helped streamline a lot of business processes in global insurance markets due to the inherent efficiency in standardisation.
- No single source of truth since the messages are stateless and the state is stored in local system of records of the trading partners.
- There is no shared control of data which means that the workflow rules are based only on the local status of the system of record. This also leads to reconciliation overheads in case the current view of the record is not matching between the partners involved.
- Intermediaries such as software service providers have proliferated to become like Message Exchanges as they implement the ACORD messaging protocol. They have become an important cog technically in communicating a message from one trading partner to another as many trading partners do not want to invest in an in-house technology solution but rather buy an off the shelf service. However, this has led to a reliance on these intermediaries (like a hub and spoke model) between what is effectively a peer to peer messaging standard, therefore becoming a point of failure in the communication between trading partners.
- There is no clear cut ownership of data. The messages are sent based on the concept of a single sender and receiver. This leaves the possibility of parties in between the transaction to be able to modify the data.
- Data can potentially be changed by any of the trading partner or the service provider without an audit trail of the changes involved.
- Linking of data across the lifecycle of a Risk is difficult. Since messages are throwaway once consumed, there is a lot of redundant information passed around in several stages of the risk. For example when a risk is signed at the end of the placement process, the same risk information is sent again for initiation of technical accounting or raising a claim advice against that risk in case of a loss.
Here comes the Blockchain
With the advent of decentralised, distributed ledger storage and smart contracts using Blockchain, it gives an immense opportunity for players in the Global Insurance Markets such as the London Insurance Market to set up their consortia (semi-private) permissioned decentralised networks. This allows the relevant trading partners to do peer to peer transactions along with having a common distributed ledger or record of these transactions.
Standardisation is becoming one of the key prerequisites for a wider adoption of smart contracts and herein ACORD could complement its existing data standards with the generic business rules and smart workflow capability of smart contracts.
Rather than a XML driven data standards using with a reference implementation of standards , ACORD could become a facilitator for standardising the workflow based on Smart Contracts in the decentralised network of trading partners.
- ACORD could provide a library of Smart Contract Templates. These templates can hold the pointer to the version and the document hash of the XML used for the payload. The data structures and dictionary should still be very much reusable. Each trading party can then use these Smart Contract template to deploy or initialise the Smart Contract
- Insurance Entities like Risks, Claims, Quotes, Firm Orders could become digital assets in form of a Smart Contract which will have an owner and other set of participants who will have access to send transactions or queries to it
- Business Rules in the Smart Contract and the Data stored become immutable as it goes inside the block of the chain leading to better security of the data
- Shared access to the same data and the consensus protocol in the Blockchain shall allow for verification of the transactions from the interested parties who will have permissions to do the verification
- Smart Contracts shall define the access control and the basis (current state) of the trigger points on it. For example only a broker can request for a quote in the placing process. This shall be a strong enabler for cross-organisational workflows.
- Smart Contracts have the ability to emit events to the parties involved in the contract. This way rather than just being a point to point messaging system, this allows multiple participants on the risk to be notified of the change. In the case of claim process, third parties such as lawyers or experts can enter into the claim review process on the claim notification event.
- Linking of data through the multiple stage of the process such as placing, accounting and settlement, claims shall now be possible
*Disclaimer: The view expressed in this post are author’s own opinion