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

Two big challenges for the London Market this year–modernizationand the European Union's new Solvency II regulations–will beclosely linked and interdependent, International UnderwritingAssociation's chief executive in London predicted.

Dave Matcham said he believes the way companies implementtechnology changes will have a major impact on how they deal withboth issues.

"On the face of it they are separate initiatives–one isregulatory, 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 ofSolvency II implementation costs are related to technology. Thisincludes modeling software, data warehousing and consideration ofdata quality. Meanwhile, market modernization is a continuousimprovement process as technology provides opportunities forfurther efficiencies."

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

On his Web blog (www.iua.co.uk) Mr. Matcham wrote that theproject enables validated data to be submitted and reused withoutrekeying.

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

Without improvements in data quality, he said, a company'sinternal capital modeling might need greater margins of error to beacceptable.

The last time a market "reform" project had direct regulatoryconnections was the introduction of the contract certainty code ofpractice, he said, noting that contract certainty is now "very muchbusiness as usual in the market and part of the dialogue undertakenbetween regulated entities and the FSA."

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