Corporate governance procedures to get their own model law News added by LifeHealthPro on April 8, 2013
By Liz Festa
Houston--After wrestling with a corporate governance data collection for some time, the NAIC is moving forward with a new model law to facilitate the annual collection of confidential information on insurers’ corporate governance practices.
Having a corporate governance mechanism for annual reporting of corporate governance practices of insurers provides the NAIC governance standards and practices consistency with international standards in that they can be implemented and uniformly reviewed across the United States.
One of the standards of the internationally established Insurance Core Principles (ICPs) to which the U.S. system generally adheres requires adequate top-level controls, checks, structures in place and also to effectively communicate them in an extensive fashion and detail with supervisors and others.
Generally this review happens during the examination process but not annually, as the Working Group recommended.
“We had a struggle for some time on how to collect information from insurers on a confidential process, so we landed on the decision to develop a new model law,” said Vermont Insurance Commissioner Susan Donegan in Houston at the Spring National Meeting of the NAIC.
Donegan is chair of the Corporate Governance Working Group, which successfully reported up its analysis and future model law recommendation to the Solvency Modernization Initiative (SMI) Task Force here on Sunday.
Existing model laws and conveyances for corporate governance supervision were studied and scrapped.
For example, some felt that collecting corporate governance information under an existing model law would not come with a legal requirement to file the information on an annual basis. The collection of confidential data under another was problematic because there was in it an inherent lack of consistence in protection of analysis work papers.
“Confidentiality is a many-headed hydra. At the state level and at company level, we are wrestling with that, Donegan said, speaking of the need to need protect information as well as to review it.
Some industry members are concerned about the confidentiality impact of corporate governance system across states, where some states have very strong sunshine laws that allow for much disclosure, while other states may not.
Another concern is so-called redundancy, adding to what is already in place in terms of reporting to the state regulators, while some industry representatives have expressed concern that a model law could result in provisions that expand the intended scope of the model at its inception--so-called mission creep.
The development of the Model Act would provide a means for regulators to get a better understanding of the governance practice of domestic insurers while development of this model law would also ensure the confidentiality of governance information collected from insurers, according to the working group’s description.
The Working Group adopted an extensive analysis of regulatory response to dealing with the open corporate governance issue. The analysis was between existing standards and international standards, company best practices and regulatory needs.
“I am proud of this product. We continue to up and raise the bar on how we monitor for solvency--this is about raising the bar prospectively for solvency,” said Steve Johnson, an active solvency modernization issues insurance regulator from Pennsylvania.
This is one the most important part of running a company--corporate governance. It starts at the top. This raises the bar for how we do solvency in this country,” Johnson said.
TheWorking Group also asks other groups to enhance their procedures, or include more pointed language or develop additional procedures and guidance for best practices.
The group will be sending work requests to other NAIC working groups and task forces to add, for example, an existing corrective powers supervisory element of the Hazardous Financial Condition Model Regulation into the accreditation standard for corrective action, add requirements for regulators to ask pointed questions about an insurers or reinsurers governance practices and the suitability of offices and directors and allow a state commissioner wide enough authority to deem an appointed actuary unsuitable for a property/casualty insurer, as is available now to regulators for life insurance actuaries.
Phil Carson, American Insurance Assocaition Associate General Counsel, stated that "AIA is willing to work with the NAIC on a model law, as along as they improve coordination of existing regulatory tools and keep their commitment to eliminate redundancy in the reporting of corporate governance. Insurers already have numerous requirements on the reporting of corporate governance and the proposal creates the risk of additional unnecessary regulatory burdens."
Originally published on LifeHealthPro.com
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