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Abstract
The abstract was not available at the time the proceedings were created. Please check an updated version of the paper abstracts at the conference proceedings web site.
Table of Contents
Credit risk assessment plays an important role in the day to day operation of a business. Credit risk assessment is performed when a Buyer asks a Seller to ship merchandise without prior payment. (It is also used in other areas of a business including marketing. For example, a business may undertake a marketing campaign in which prospects are pre-qualified for purchases up to some specified amount.)
This paper will focus on the traditional credit risk assessment function and the development of global standards for the credit risk assessment function performed by credit insurers to establish premiums for credit insurance. Specifically on the project to develop XML taxonomies based on XBRL rules using United Nations approved business semantics to support the credit risk assessment work flow between credit insurers and information providers. Members of the International Credit Insurance & Surety Association, and Information Providers are participating in this project.
Credit risk assessment, in the traditional sense, is part of the procurement cycle. Simplified version. (The cycle is essentially the same for products and services, however, to facilitate the flow I will use "product" to mean "product and/or service.")
Buyer
Has a need
Identifies potential vendor(s) for the product
Qualifies vendor(s)
(The qualification process is similar in many ways to the credit risk assessment process.)
Issues purchase order-- Almost all the time requesting shipment without prior payment.
Seller
Must decide whether or not to ship without prior payment.
Accept risk
Seller performs credit risk assessment process
Insures receivable-Buys credit insurance
Credit insurer performs credit risk assessment function to decide whether or not to insure and calculate premium
Ships product
Sends invoice
Buyer
Pays-end of story
Fails to pay
Seller
Collects credit insurance or starts collection process
Information requirements
Credit risk assessment requires a lot of information about the Buyer including; business name, address, years in business, where incorporated, type of business, organizational structure, financials, ability to pay, willingness to pay, suits, liens, judgements, its associated industry, etc. Also information about other businesses associated with this business; branches subsidiaries, parents, etc.
Information Sources
Business itself
Credit risk assessor's own experience with the business
Other trading partners
Courts
Public filing jurisdictions
Financial
Non-financial
The credit risk assessor can obtain information from the business in question and has information on any prior experience and may be able to obtain some information on related members of the business family. It is unlikely, however, that it can obtain payment experiences of other trading partners. It is also unlikely that the credit risk assessor can obtain public filing information from all the public sources available. There are, for example, more than 3000 in the United States alone. Thus credit risk assessors buy information (data and text reports) from Information Providers. They buy a lot of information-more than a Billion dollars per year. Credit insurers alone spend a few hundred million dollars per year.
Information Providers
Information Providers are set up to collect, organize, analyze and maintain information on millions of business entities worldwide. The collective number is in excess of 100 million. They are set up to obtain information from the individual business entities, trading partners, and public sources. Millions of updates flow into their data bases daily. Many are set up to create and maintain business relationships--sometimes called family trees. They also have the ability to maintain historical information, create industry statistics and make peer comparisons.
Credit Assessment Processing steps with Information Provider
There are two basic processing steps between a credit risk assessor and an information provider with an optional third:
Identify/find the business entity in question in the information provider's database. The matching problem.
Use the information provider's identifier/key to request the desired product or service.
Optionally, request follow-up products or services.
Credit insurance is and has been very popular in Europe especially for cross border trading. Its popularity is increasing in all other parts of the world.
Prior to the Common Market the credit insurance companies operated in essentially protected markets. The advent of the Common Market changed the situation-they were allowed to compete in the market place. Competitive pressure required that they speed up the decision process, improve the quality of the decisions and reduce costs. Automation was one way of meeting these objectives; automating the internal decision making process and automating the work flow between Credit Insurer and Information Provider.
International Credit Insurance & Surety Association (ICISA)
"The ICISA is a worldwide association that brings together companies that write credit insurance and/or surety insurance. The association represents the interest of its members by facilitating an open exchange of information, in conjunction with representing the industry at an international level."
ICISA has members in 30 countries doing business in nearly all the countries in the world. It was formed in 1928. (From the ICISA web site, http://www.icisa.org)
Role of Standards
ICISA and its members decided years ago to compete on the business (credit insurance) and use a standard way of supporting the exchanges between credit insurers and between credit insurers and information providers. This makes good business sense because a single credit insurance company may acquire information from hundreds of information providers. It also makes good business sense from an information provider's point of view since they sell information to numerous different credit insurers. ICISA decided to exchange standards that were compliant with the electronic commerce standards created by the United Nations UN/CEFACT Forum. This would give them the greatest global acceptance. Of particular importance were the standards for the names, format, definitions, acceptable values and the ability to specify mandatory, optional, conditional presence of data elements, and the capability to specify conditional relationships between data elements and among groups of data elements; that is, the ability to create business semantics.
This was a very important decision and shows great fore sight on the part of ICISA and its members. It helps reduce costs and improves the understanding of data. It also provides an opportunity for software developers.
Standards Development
To accomplish this ICISA initiated the creation of the Reference Group of Experts Financial Information Services (GREFIS). GREFIS is part of the United Nations electronic commerce standards organization, UN/CEFACT Forum.
GREFIS is responsible for the creation of all electronic messages and associate specifications required for the products and services used by the credit insurance risk assessment process.
These specifications include:
Messages
Message implementation guidelines
Business semantics
Code sets and values
GREFIS played an important role in the development of the UN/CEFACT Business Credit Report message (BUSCRD) for EDI.
GREFIS is also responsible for the development of both UN/CEFACT and XML specifications for use by the credit insurance industry.
Standards Publication
Specifications for information exchanges between credit insurers and between credit insurers and information providers using BUSCRD were published by GREFIS in July 2000. These specifications and additional information regarding GREFIS are available at http://www.grefis.org.
In 2000 the GREFIS and ICISA recognized the importance of XML as a new electronic exchange technology for use by the credit insurance industry. In 2001 ICISA approved a plan to create a set of XML messages (taxonomies) that provide the same capability as the UN/CEFACT BUSCRD message developed by the credit insurance industry. XML taxonomies will be developed using XBRL (eXtensible Business Reporting Language) rules with United Nations/GREFIS business semantics. The use of the same business semantics for conventional EDI and XML is very important because this makes the credit insurers decision system invariant to the exchange technology.
XBRL was chosen because it is gaining worldwide acceptance from accounting standards, accounting firms and major corporations for use in business reporting. The XBRL specifications for taxonomy development contain the capabilities required to express the GREFIS business semantics. In addition XBRL "is a royalty-free. Open specification for software that uses XML data tags to describe financial information for public and private companies and other organizations." (From the XBRL Fact Sheet. Also see http://www.xbrl.org for more information.)
XBRL-Credit Risk Assessment Services (CRAS) Working Group Charter
XBRL International requires a charter for groups developing XBRL taxonomies under its auspices. ICISA created the Credit Risk Assessment Services (CRAS) Working Group Charter. It was approved by the XBRL International Steering Committee at its meeting in Tokyo in November 2002.
The CRAS Charter states that the "purpose of the Credit Risk Assessment Services, CRAS, working group is to develop Credit risk assessment taxonomies that will streamline the financial risk assessment work flow for credit insurance, receivables management, factoring, bonding, rating, etc. The workflow is between the information consumer and information provider. The working group will start by developing taxonomies for credit risk assessment. Specifically the working group will start by developing taxonomies for the current set of United Nations compliant electronic messages and data dictionaries developed for the credit insurance risk assessment work flows."
The first activity of the CRAS Working Group is to "develop credit insurance taxonomies required to support the credit insurance risk assessment workflow between credit insurers and information providers. These taxonomies will be based on the current United Nations electronic commerce compliant messages and vocabularies developed for the credit insurance risk assessment process through GREFIS.org."(CRAS Working Group Charter)
The business functions to be supported are:
Request for matching--(Name & Address processing)
Response to match request-(Candidate names)
Request for data product
Data product
Candidate data products for the first step
Company identification and summary
Affiliates
Financial institution information
Company evaluation
Financial statement data
Industry financial statistics
The next steps include the addition of additional data products and services. The additional products include, but are not limited to:
Company history
Activity details
Parent company
Subsidiaries and branches
Risk assessment scores
Negative events and special notification
Analyzed financial data
Enhanced financial statement data
Payment experience details
Payment summary
Payment analysis
Management/principal information
Additional services include, but are not limited to:
Requests for investigation
Request for continuous refreshment
Request for monitoring
The next steps also include the development of "extensions to the credit insurance risk assessment taxonomies to meet the requirements for receivables management, factoring, rating, bonding and other areas of financial risk assessment."(CRAS Working Group Charter)
Vincent Bert, GERLING NCM Group, is chairman of the CRAS Working Group and lead person for the entire project. Major support for this effort from the credit insurance industry comes from the Coface Group, GERLING NCM Group, EULER&HERMES Group, CESCE, MAPFRE, and others. Information providers are also working on the project.
Project organization
Steering Committee
Sets overall objectives
Provides governance
Project Management-Vincent Bert, GERLING NCM
Detailed project planning
Coordination activities of other groups
Responsible for day to day management
Business Sub-working Group
Creates detailed business requirements
Creates and maintains code lists
Creates neutral business semantics for technical work
Technical Sub-working Group
Creates XBRL taxonomies
Specifies messaging standard
Selects development tools
Liaison
Works with other XBRL groups to leverage work
Monitors other XBRL activities
Leads CRAS taxonomy approval process
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