Wednesday July 18 2001

Web Services and the Insurance Business

Is the Internet Finally Fulfilling its Promise?

Marco Remmerde and Sander Duivestein

One of the major promises of the Internet is to change the way business is done in a dramatic way. If this promise were to be fulfilled, the Internet would allow companies to integrate their businesses seamlessly. Further, these companies would have more information that could be retrieved at a much higher speed than before, which would serve to create possibilities for improving profits.

When we consider developments over the last few years, we can see how organizations have encountered many problems in using the Internet effectively to fulfill this promise. One of the major problems they have faced is that most companies use different operating systems, object models and programming languages, and communication between these different system is often difficult. These problems must be overcome to enable smooth business transactions between companies. In this article, we will look at how insurance companies can make use of the possibilities Web Services offer to solve problems of integrating disparate systems.

Insurance Companies and the History of the Internet

We need first to look at the development of the ways in which companies use the Internet. The history of the Internet includes three general phases:

• providing information - companies use the Internet to provide static information about themselves;
• exchanging information - companies use the Internet to setup a dialogue with their customers;
• sharing process - companies use the Internet to integrate their business processes with those of other companies, i.e. utilize Web Services.

Businesses have traditionally used the Internet to provide and exchange information. However, more and more companies are using Web Services, and exploring the interesting possibilities they offer in the sharing process. We will now focus on how insurance companies, specifically, experience these three phases.

In the first phase, an insurance business uses the Internet in the same way as any other company; that is, as a medium for promoting its own company. During this period, the first insurance portals were created. On these portals people could find information about different kinds of insurances; quite handy, if you want to find insurance that costs little but covers a lot. It was, furthermore, these kinds of portals that served to make the Internet widely popular.

The second phase is more interesting, and a lot of insurance companies are still in this phase. In this phase, businesses use Internet technologies to open up old mainframes and share information, which had previously been inaccessible, with their clients. If I, for instance, surf to my insurance company's website, I can get information about my insurance, and make appropriate changes to it. This service has been a great help to agents selling insurances to clients. The agent no longer has to fill in a handwritten insurance request. Instead, s/he can now use a laptop either offline or online, and use the Internet to synchronize an insurance request with its database management system, which may reside on an old mainframe. These kinds of processes used to take several weeks, but with the help of the Internet, they can be done in a second.

As we have said, most insurance companies are still in the second phase of Internet development. However, the most exciting phase is the third: companies can (and some do already) use the Internet to integrate each other's business processes. In the following, we will discuss how insurance companies can benefit from these new possibilities that Web Services offer.

A Future of Web Services

What is a Web Service? Well, according to Graham Glass, CEO and Chief Architect of the Mind Electric "A Web Service is a collection of functions that are packaged as a single entity and published to the network for use by other programs. Web Services are building blocks for creating open distributed systems, and allow companies and individuals to quickly and cheaply make their digital assets available worldwide"

In the third phase, which the insurance companies are entering as we speak, Web Services (will) play a crucial role. In essence, they provide a piece of functionality through the Internet. One of the more important and interesting aspects of Web Services is the standardization and broad acceptance of protocols such as XML (eXtensible Markup Language, for formatting messages), SOAP (Simple Object Access Protocol, for calling Web Services), UDDI (Universal Description, Discovery and Integration, for finding Web Services) and WSDL (Web Services Description Language, for the description of Web Services).

Does the introduction of Web Services change the landscape of the insurance business? Before answering this question, we need to understand the various actors in the insurance business. There are three basic actors operating in the insurance field:

• the insurance company
• the insurance agent
• the customer

The relations between these actors are mapped in the diagram below:

The first connection is between the insurance company and the agent. The insurance company offers a product range; the agent offers a selling and distribution channel. Normally, one agent is 'hooked' up to only one insurance company (often despite advertisements in which agents claim their independence and neutral advice). From the perspective of the insurance company, the agent is just a selling channel. Given that an insurance company may already have a 'product-range Web Service', what if it decides to open its own B2C-site where it can sell its own products without paying any provision to the agent? The increased possibilities for agents to choose from a wider range of products without extra effort, and the increased competition between insurance companies on a more accessible market, will decrease the chances for an insurance company to benefit from having their own B2C-site.

Web Services offer a new distribution channel for the insurance company, but they also offer agents more flexibility in offering products and services from the available product ranges: Web Services make it relatively easy for an agent to switch from one insurance company to another. However, there would still be a strong dependency between an agent and a company: because an appropriate Web Service will make it easier for various types of businesses to offer products from an insurance company, more agents will be attracted to the insurance market. For instance, a website for a travel agent could incorporate a (travel) insurance Web Service. The same can happen for a car rental website; the site could incorporate a specific insurance Web Service, and so on. The effect of an increased use of Web Services will be that companies that previously had nothing to do with selling insurance may now enter the insurance business with relative ease.

This relationship between the agent and the customer (connection number 2) is similar to the one between the customer and the insurance company (3). From the customer's perspective, it makes no real difference whether s/he buys an insurance policy from agent A or from insurance company Z. The only thing s/he cares about is the price. Web Services, however, will affect the behavior of the customer. S/he will shop around for the right insurance policy. The new possibilities offered by Web Services serve to render a lot of information to the customer. Based on this information, the customer can pick the policy that will suit her/his needs best. Furthermore, a lazy customer who only goes to one insurance agent will be offered a wider choice from her/his insurance agent with the use of Web Service technology.

The landscape of the insurance business will change with a wider use of Web Services, so that all parties involved will be able to communicate with each other. But although all communication is based on the same protocols, there is a need for an overall XMLSchema that strictly determines the format of this communication. This XMLSchema (XIS: XML Insurance Language) ensures that every party involved 'talks the same language'. In the future, the insurance business could look like this:

1. The insurance agent X.com has a website on which customers can buy an insurance policy on-line. This website has the most relevant and accurate information and offers a wide range of insurance products.
2. Different insurance companies provide relevant and accurate policies that constitute this range. Each insurance company has its own set of insurance products. These sets are offered to agent X.com (and other agents) through Web Services operated by the insurance companies.
3. The only thing agent X.com has to accomplish is to drag-and-drop a specific insurance Web Service (say, a car policy insurance) on his website. To find this particular insurance Web Service, provided by an insurance company, UDDI will be used.
4. X.com now has a wide range of insurance products (with little effort from the insurance companies). The next step is that a customer will buy an insurance policy on-line. To do this, he/she has to fill in his/her data on the website X.com.
5. There are then two possible scenarios: either, the agent X.com has not (yet) integrated its customer and policy administration with the insurance company. This means that the agent must perform all administrative tasks involved. When this is done, it has to send data about the customer and the policy to the appropriate insurance company.
6. Alternatively, each insurance company can offer its own Web Service for client and policy administration. Once again, agent X.com only has to drag-and-drop these Web Services. In this scenario, all data about customers and policies are processed directly by the insurance companies.
7. When a customer wants to transfer his/her insurance policy from one insurance company to another, the agent only has to send the customer data to a different Web Service.

All communication between customers, agents and (Web Services of) insurance companies is, of course, based on XIS (XML Insurance Schema); the lingua franca of the insurance business. Because of variations and differing regulations, XIS should be defined for each country and region.

Conclusion

Within the next few years, or months, Web Services will appear in all sorts of places in our daily live; not only for business but also for personal purposes. Microsoft recently announced the coming of Hailstorm; a set of personalized Web Services such as MyAddress, MyEmail, MyCalendar, and MyAgenda. By integrating all of these Web Services within the business scenario mooted above, insurance agents and companies will, for instance, always know when a customer has moved to a new address. The MyAddress Web Service transfers this information to the customer administration Web Service. This is just one example, but more can easily be thought of.

A highly evocative type of scenario is, of course, one in which someone gets injured falling off a bike, for instance, and the only thing s/he has to do is to use a SmartPhone to check if s/he is covered for a specific injury, and to find out where the nearest hospital is (Microsoft has a nice MPEG-movie about this). This sounds very simple, but to get someone to the nearest hospital, a lot of Web Services must interact. Life can really be simple!

Readers of this article may also be interested in reading Web Services and Collaborative Commerce, by John Fou, and Business Architecture for a Web Services Brokerage, by Mike Clark.

Marco Remmerde and Sander Duivestein both work for the number one web technology unit Warp11 within Cap Gemini Ernst & Young Netherlands.