Lord of the Data

John Nicola

[Reprinted from an article that appeared in the March 2002 issue of FORUM magazine
with permission from the Canadian Association of Insurance and Financial Advisors (CAIFA).]

XMLife – a new electronic standard

Gandalf the Grey is the great and all knowing wizard of Lord
of the Rings
who helps the hero Frodo complete his mission to destroy the powerful
ring. Personally, I would love to meet the technological equivalent of Gandalf to help me
elevate my practice to the next level of effectiveness. So, with some literary licence,
let’s assume I meet a tech wizard (let’s call him Tommy the Tech) who tells me that
tomorrow, my wishes for instant information access will all be granted. The next day, I go
to work and this is what happens.

My first appointment is with Barbara Winters, a successful
50-year-old orthodontist who is married to James, a lawyer. They have two college-aged
children, Jason and Carly. Barb handles all of the finances for the family. Our meeting is
a semi-annual review; specifically, we are looking at their life insurance with a view to
adding a joint last-to-die level cost of insurance (COI) rider. They are now as concerned
about estate preservation as they have been about basic first death life needs.

After the usual social chit-chat, our conversation is as follows:

John: Barb, as you know, we have been able to give
you updated investment statements for sometime now that show your current holdings, asset
allocation, year-to-date and since inception rates of return.

Barbara: Yes, and I appreciate the information very
much. I am sure we have made better decisions on our investments because of that. Of
course, it would be nice if we could get the same information about our insurance plans.
We are putting over $30,000 per year into them and the last time we met, it seemed we had
almost $250,000 in equity. However, I have no real idea about how they are doing
collectively and what we are paying for insurance. Why can’t you provide me with the same
kind of summary about the insurance plans that you give me for my investments?

John: Barb, your timing is impeccable. Please meet
my new assistant, Tommy, who is a technological wizard (so to speak). He is going to show
both of us how to get the information we need to review your current plans and decide what
changes, if any, we need to make.

Tommy’s fingers fly over the keyboard and, in no time, we
have the following information regarding Barb’s five insurance plans:

  • all the basics, including policy numbers, carriers, owners,
    beneficiaries, face amounts, type of coverage, etc.;

  • cash values and gross fund values;

  • allocation of the fund value;

  • this year’s mortality charges and this year’s net investment
    performance of each asset class Barb has;

  • in-force projection at different earnings assumptions
    showing yearly mortality costs, adjusted cost base (ACB) of the plans, and the possibility
    of looking at the tax results of making withdrawals from the plans during Barb’s and
    James’s retirement. These projections also allowed me to change the level of coverage in
    the future and switch it from yearly renewable term (YRT) to level COI (including joint
    last-to-die level COI); and

  • unused maximum tax actuarial reserves(MTAR) available for each plan.

This data is not just in its raw state. It is well
organized into meaningful projections and reports that give Barb and me the same level of
information about her plans that she has been getting from me about her investments for
years. We discuss the possible outcomes and then continue with implementing the changes we need to make.

At this point, Tommy does a few more keystrokes, and we
have all of the documents we need on the screen. The system allows us to not only collect
and analyze data, but to process business and keep all forms we need in electronic format.
Information, which often takes weeks to receive, is online in-stantly, and written
business that can take days to process is submitted immediately.

Later, Tommy sent me an e-mail explaining that, from now
on, we would have a daily update on all new business indicating where it was in the
underwriting process. When the case is placed, the commission will be transferred to my
corporate bank account by way of an electronic funds transfer (EFT). At the same time, all
of the details regarding that commission will be added electronically to my internal accounting package.

Unfortunately, unless you have your own Tommy, this is just
a fantasy. However, it is within reach using existing technology.

How could it happen and what would it take to make it a reality?

Let’s quickly review the overall problems of what we could
call “data integration” (or aggregation to some).

  • The life companies have proprietary legacy database systems
    that do not transfer data well to other systems.

  • If we use more than one managing general agency (MGA) to
    process our business, then we have multiple sources to collect data from and to send
    documents to. In many cases, the MGAs have restricted access to only a few of their suppliers as well.

  • Even though some companies have begun to store client and
    policy data on secure websites, it still has to be downloaded manually into your database.
    I am not aware of any contact management systems that accept electronic feeds from
    Canadian life companies unless you arrange for custom programming to accept those feeds.

How can these obstacles be overcome?

Jack Brown, Guy Mills, and others have written about a new
Internet electronic standard called XMLife, which allows all companies to use one type of
data structure that can then be transferred to a secure website. This standard has been
sanctioned by most of the major Canadian and U.S. life companies, and many other support
suppliers (such as CPU Tracker, Medysis, and Winfund, for example).

Most companies have been slow to create the necessary
XMLife feeds, even though this standard was agreed to in 1999. Even when they do conform,
advisors will still face a number of other challenges, including the following:

  • When will life companies have data feeds in XMLife format?

  • How will you transfer this data into your own systems?

  • If you deal with multiple carriers, you will have to go to
    each website to update information.

  • Will the life insurance industry agree to standardize
    documentation such as application forms, etc.?

There are, however, initiatives to address these issues.
Last year, for example, a handful of life insurance companies banded together to explore
the viability of creating a system to process life insurance transactions, similar to the
FundSERV system used by the mutual fund industry. This initiative, called Life Insurance
Company Central (LCC), would allow for all of the transactions in our example above, in
addition to others. It would create a central clearing-house for all information for all
member companies. That means you would collect data from multiple carriers from one site.

Transferring the data to your own system and being able to
write reports are other challenges. While a number of software vendors have said they do
accept the XMLife standard and will be able to accept feeds, they have not written the
actual applications to do so. They will not do that until there is some critical mass of
data in this format.

Where does that leave us now?

XMLife holds a lot of potential for the financial services
sector, but relatively little we can use today. We can wait until this standard develops,
or we can be more proactive and try to accelerate its arrival. How can you make a
difference? Consider taking the following actions now:

  • Ask your major suppliers for details about their XMLife
    initiatives and whether or not they are supporting LCC. Indicate that data collection and
    business processing is a large part of your overhead and, therefore, you will be looking
    for suppliers who are able to deliver high-tech solutions in these areas.

  • If you deal with MGAs, ask them what they will be doing to
    allow you to aggregate client data. Are they aware of the XMLife standards (which also
    affect commissions)?

  • Call your software supplier and get in writing their plans and commitments to XMLife.

John Nicola, CLU, CH.F.C., currently operates
The Nicola Financial Group in Vancouver, a firm that specializes in financial and estate
planning for business owners and professionals. For comments or questions, or to request
copies of the LCC proposal, please contact John at
[email protected].

For more information on the Canadian Life Insurance
Electronic Data Interchange Standards (CLIEDIS), please visit
www.cliedis.ca.