The National Association of Insurance Commissioners’ Financial Regulation Standards and Accreditation Committee advanced a new Model Audit Rule (MAR) with content based on the Sarbanes-Oxley Act, over the strong objections of the National Association of Mutual Insurance Companies (NAMIC). The vote was 7-3 in favor of passage.
The MAR, with certain SOX-derived content that NAMIC had protested, was approved in a vote that exposes it to public comment for a year – a move that is part of the NAIC’s procedure for vetting “accreditation items” those model laws and standards states must have to qualify for to receive NAIC accreditation. Accreditation is the process that enforces some uniformity of solvency regulation among the states.
The NAIC also heard objections from the National Conference of Insurance Legislators (NCOIL) and FreedomWorks. Both organizations raised objections on the propriety of forcing something into the accreditation process without it being adopted currently in any states and the lack of a cost-benefit analysis. “The NAIC’s own process calls for consultation with legislative groups, and the NAIC has heard loud and clear from legislators. The overwhelming message was not to proceed, but that message was ignored,” said Neil Alldredge, NAMIC vice president of state and regulatory affairs.
“The new standards for NAIC model law creation, which require more initial consensus on the need for such items, ought to have been applied in this case,” said William Boyd, NAMIC’s financial regulation manager. “SOX was intended for public companies, not mutual insurers. In view of the advent of new standards, we had hoped to see this slowed or stopped from becoming an accreditation item.”
During the panel’s June 1 meeting in San Francisco, Boyd outlined NAMIC’s other primary objection. “It costs too much,” he said. “It costs more than it provides in benefits.”
Boyd and Alldredge told the committee that the internal control provisions in the model rule are untried and untested, and it’s unclear what the costs would be. “Policymakers could now be forced to jeopardize their accreditation status or adopt a proposal whose costs far outweigh its benefits,” Alldredge said.
The changes to the MAR had been approved last year by the NAIC’s Executive and Plenary Committees. A prior version of the MAR, containing verbatim content from the federal Act was the object of strenuous NAMIC efforts to moderate provisions concerning internal accounting control. A moderated version is what survives.
The MAR revised for SOX-derived content is intended to be effective nationwide in 2010 for reporting in 2011. “If the executive committee ratifies this decision in September, we will then carry our battle directly to the states,” Alldredge concluded.