NU Online News Service, Jan. 11, 3:16 p.m. EST

Two big challenges for the London Market this year–modernization and the European Union's new Solvency II regulations–will be closely linked and interdependent, International Underwriting Association's chief executive in London predicted.

Dave Matcham said he believes the way companies implement technology changes will have a major impact on how they deal with both issues.

"On the face of it they are separate initiatives–one is regulatory, the other technology and process change," he said. "However, I believe that they are not mutually exclusive."

Mr. Matcham noted that it is estimated that "up to 40 percent of Solvency II implementation costs are related to technology. This includes modeling software, data warehousing and consideration of data quality. Meanwhile, market modernization is a continuous improvement process as technology provides opportunities for further efficiencies."

One of the market's key 2010 modernization projects is the wider implementation of Pearl River, N.Y-based ACORD data standards, which will be seen in greater use of the Lloyd's Exchange for endorsements and other peer-to-peer transactions between brokers and carriers, he said.

On his Web blog (www.iua.co.uk) Mr. Matcham wrote that the project enables validated data to be submitted and reused without rekeying.

He added that the initiative complements the need for "high-quality data to be available for analysis of risk and capital modelling for Solvency II. One could say that there is a regulatory imperative for insurers to be ACORD standard compatible, as this would at least give greater assurance that data received and processed by insurers will be of high quality and give regulators greater comfort that their capital modelling is adequate."

Without improvements in data quality, he said, a company's internal capital modeling might need greater margins of error to be acceptable.

The last time a market "reform" project had direct regulatory connections was the introduction of the contract certainty code of practice, he said, noting that contract certainty is now "very much business as usual in the market and part of the dialogue undertaken between regulated entities and the FSA."

Mr. Matcham wrote, "I believe that many companies are now seeing the direct connection between data standards and internal capital modelling. So, directing resources to ACORD standards could well be a good investment decision for the future."

Special Reports /

IUA: Technology Will Impact Modernization, Solvency II Use

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