How XML Transformed the Computerized Insurance Business

The "electronic transaction system for insurance" was developed as a standard technology for electronic insurance transactions. It was a supplementary budget project of the Japanese Ministry of International Trade and Industry (currently the Ministry of Economy, Trade and Industry) in 1998. This project created the "Insurance Transaction Base", which standardizes communication telegrams used in the insurance industry into XML format.
The "Insurance Transaction Base" can be used to build customer-friendly systems with low construction and operating costs.

Insurance Transaction Base (EASI protocol) and liberalization

What is the Insurance Transaction Base?
In 1998, the Japanese Ministry of International Trade and Industry invited public participation in the computerization of core industrial and public interest projects. The "Electronic Transaction System for Insurance" was one of the themes of these projects. Hitachi, Ltd., NEC Corporation, and Fujitsu applied to participate and were accepted. These three companies cooperated with 10 life and nonlife insurance companies to establish the Insurance Transaction Base under the name of "The Electronic Transaction System for Insurance (EASI)" project.
The Insurance Transaction Base* comprises the infrastructure of the EASI project. It standardizes the communication telegrams used for insurance transactions in XML. Moreover, a low cost, convenient system can be built because insurance companies, agencies, and customers are connected by the Internet. System development and on-site verification (creating business applications on the Insurance Transaction Base) had already been completed by 2000.
Note: The Insurance Transaction Base is also referred to as the EASI protocol.

Waves of liberalization
The wave of liberalization and deregulation of the financial industry that started with the so-called "Japanese big bang" has had a profound effect on insurance companies and agencies. Since the end of the relief measures put in place to soften the blows of insurance rate liberalization (June 2000) and the liberalization of agents' commissions (April 2000), competition among insurance companies and agencies has intensified. From the point of view of purchasers of insurance products, however, this liberalization is good news. It has led to an increase in the variety of services and premiums offered by insurance companies, meaning that clients are better able to choose insurance products that match their needs. Having said that, there are now so many different insurance products available that clients can be confused when trying to make a choice. Whereas it is easy for clients to compare the multiple products on offer by a single company (by referring to details in a sales pamphlet, for example), comparing products of different companies or agencies can be difficult and time-consuming and may require making direct inquiries to the product provider.

Issues for Agencies
Agencies must minimize their cost, expand their customer base, and provide and develop after-sales service for existing customers.
Agencies have to perform a variety of complicated tasks, ranging from proposing the insurance company and product that best suits a particular customer to handling insurance claims in emergencies. All the while, agencies must be alert to opportunities to acquire new clients, reduce daily costs, and improve services.

Solutions Offered by the Insurance Transaction Base

Introducing the Insurance Transaction Base makes it possible to build new systems that overcome difficulties remarked in previous systems.

Issues with Previous Methods
Insurance companies and most agencies had already introduced online systems before the advent of liberalization, but these were independent systems, with no collaboration between individual companies and agencies. For example, the purchase of an insurance policy by a customer from company A, would be handled by agency B, which accepted the order. For processing the purchase, Agency B would have to use company A's system from a dedicated terminal. In addition, agency B would have its own back end system for client management into which client information would also have to be entered.
Usually, potential clients compare products from several insurance companies before they buy insurance. Therefore, agencies that deal with multiple insurance companies must provide clients with materials or information for comparison from different companies. In the past, the agency would have to elicit clients' needs (over the telephone or by other means) and then refer to the online system of each of the insurance companies in order to determine which companies offered suitable policies and to enable the customer to compare policies and prices.
This inefficient operation would then have to be repeated later on when, for example, finalizing or renewing a contract. Although online systems were in use, they were by no means perfect (for example, data would still have to be transferred between systems manually by operators).

Problems with Previous Systems
When there were changes in product contents or price, or when new products were released, the system would have to be changed accordingly. The cost and time necessary for system changes would be substantial and other work would be held up until changes to the system were complete. Moreover, additional costs would be incurred for developing or changing systems, such as for installation and setup.

Prescription for Solving Problems
The Insurance Transaction Base appeared at the same time that liberalization started. By the autumn of 2000, development and on-site verification of the Insurance Transaction Base had been completed. That is, the insurance industry was ready to deal with the wave of liberalization when it came along.
If agencies and insurance companies were using their own systems, unconnected to others in the industry, agency operators were obliged to relay data to and from each system, which led to an unnecessarily heavy workload. Additionally, a large amount of office work, such as drawing up estimates, would add to the amount of time involved. Seen from the customer's point of view, this was an inconvenient and time-consuming system that dragged on too long from the initial telephone inquiry to the completion of paperwork.
The Insurance Transaction Base standardizes related components such as insurance transaction models, data items stated on forms, and the telegraphic message format (XML) in order to create a unified base. By building up the transaction system (business application) on the Insurance Transaction Base, an open system connecting customers, agencies, and insurance companies can be created.

A system using the Insurance Transaction Base
The following system can be built by applying the Insurance Transaction Base:

- A system that is able to collaborate with existing systems (without the need for manual operations).
= Can be achieved by using XML to standardize the data flow between systems.

- A system that is able to respond quickly to changes in insurance products.
= Can be achieved by using tags to distinguish data content - one of the capabilities of XML.

Systems such as this have the advantage that they are inexpensive to run and maintain in addition to reducing the everyday operating costs of insurance agencies .

Toward Success in the Liberalized Market

By constructing a new system based on the Insurance Transaction Base, it becomes easier for players in the insurance industry to work with existing systems and to carry out operations on the Internet. A system such as the one illustrated in the diagram below would offer a high level of convenience coupled with low running costs.

Note that the system described here is not an existing system. It is an example of a system that can be achieved using the Insurance Transaction Base.

Web Browser Access for Customers
Clients can access an agent's Web server from their personal computer, enter relevant information (such as the make, model, and year of the car that they want to insure) and specify the coverage conditions for the estimate they want (such as fully comprehensive, third party cover, and so on).
Clients can view the estimates in the Web browser in real time. The time and effort of selecting an insurance product is greatly reduced because the details of all policies (offered by all companies) that match clients' requirements can be displayed instantaneously. Clients can also modify their conditions and receive fresh estimates in no time. When clients find a suitable insurance product, they can finalize a contract in the Web browser. Clients can also renew and change contracts in the same way.

Collaboration Between Systems
Customers and agencies exchange data in HTML format. Agencies and insurance companies exchange data in XML format. The data are input into the agencies' backend systems as, for example, client management data that can be used in secondary processes.
Note: The systems referred to here are:

- Online systems of insurance company agencies (such as for creating estimates and application forms, and for direct accounting).
- Backend systems of agencies (such as for client management, contact management, and maturity management).

Drastic Reduction in Costs
Costs relating to agency tasks and insurance company and agency systems can be greatly reduced.

- Reduction in operator task costs:
Collaboration between agent systems and insurance company systems reduce the operator's workload, thus reducing costs incurred by operator tasks.

- Reduction in system change costs:
With liberalization, the competition between insurance companies has heated up and a wide variety of insurance products with differing content and prices are coming onto the market. Examples of new insurance products are "risk subdivided auto insurance" with changeable insurance fees according to the policy holder's age, place of living, or purpose of using a car, and "personal injury compensation insurance" which covers when the policy holder him/herself becomes a victim. In this way, service content has come to change frequently, such as with release of new insurance products or revisions of premiums. Previously, each company processed data using a fixed-length format specific to each company formulated before liberalization. Therefore, significant updating was necessary every time service content was revised, and agency systems also required numerous updates (such as configuration changes and the addition or replacement of software).
With the Insurance Transaction Base, all data handled in insurance products and tasks are converted to a single format: XML. In XML, data items are described with tags, according to the type of data. For this reason, the system does not depend on data structure. This is because the system can evaluate data content as it processes. By using the Insurance Transaction Base as the base system in this way, it is possible to build a system that is robust in the face of changes to data structure, thus reducing the cost of system modifications.

Result

By constructing a system based on the Insurance Transaction Base, following benefits can be expected:

Cost reduction:

Agency operating costs are reduced in two ways:

1. It is possible to work with existing systems of other agencies and insurance companies.
2. Clients can browse for and purchase insurance using a Web browser. In addition, since the Insurance Transaction Base is XML-based, maintenance and expansion costs can be reduced and a flexible response to frequent product revisions is achieved.

Improvement of services:

Because the system is based on XML and the Internet, the whole process of purchasing insurance becomes more customer-friendly - clients can receive estimates, make new contracts and renew contracts from their personal computers.

The Insurance Transaction Base in Action - a Case Study

Toyota Tsusho Corporation "Group Automobile Insurance Selective Support System for Nonlife Insurance"

Toyota Tsusho Corporation used the Insurance Transaction Base to construct a computerized system for making its insurance products available to the customers. The following benefits were achieved:

Real time response to inquiries
By a single operation, an agency operator can display the different estimates of all three nonlife insurance companies with which Toyota Tsusho Corporation deals. In this way, the operator can respond to clients' telephone inquiries in real time.

Adoption of an integrated application form
The Corporation has been able to introduce a new application form for policy renewals. The form contains the same policy by the same insurance company that the client held in the preceding year, as well as a recommended similar policy put forward by each of the other two insurance companies with which the Corporation deals. In this way, clients are conveniently and automatically presented with a choice of policies that meet their needs.
This type of application form for group automobile insurance is believed to be the first of its kind in Japan.