Insurance Industry Corporate Governance Model Law Proposal Seeks to Avoid Duplication
August 26, 2013 by Thomas Harman
INDIANAPOLIS – Insurance industry representatives proposed a new corporate governance model law for consideration by a National Association of Insurance Commissioners panel designed to avoid duplication of filing information and streamline review for regulators.
The proposal to the NAIC’s corporate governance working group came from various quarters of the industry, including the American Insurance Association, the National Association of Mutual Insurance Companies, the America’s Health Insurance Plans as well as insurers UnitedHealth Group and BlueCross BlueShield.
The new proposal comes after nearly two years of battling over a proposal for an annual filing — instead of one every three to five years — that included a risk-based capital charge that used credits and debits based on governance practices. The corporate governance working group on March 22 moved to kill consideration of a risk-based capital charge using the credits. NAMIC opposed the charge, because it could influence companies’ ratings negatively (Best’s News Service, March 27, 2013).
Working group chairwoman Susan Donegan told the panel her goal is to have a final draft ready for discussion during NAIC’s December meeting in Washington, D.C. “I think it represents what we’ve been trying to do for the past year,” she said. “It gives us as regulators something to start working from.” A subgroup to begin discussions is being formed.
Bob Ridgeway, AHIP senior government relations counsel, said it was vital that any corporate governance model law remove redundancy in filing. To streamline approval, large parts of the plan are lifted from the Own Risk and Solvency Assessment model law.
While the corporate governance filings would still be annual, the plan calls for any filings subsequent to an initial filing to reflect only the changes companies made during the prior year. Specifically, the proposal seeks a June 1 corporate governance filing date. Companies would file a description of corporate governance framework, policies and practices of the board of directors and committees, and management policies and practices.
Companies making corporate governance filings would not be required to make filings or provide information about financial examination requests related to information in NAIC’s Financial Condition Examiners Handbook and questions posed in annual and quarterly statements such as whether companies have established an audit committee or procedures for disclosure to the board of directors or trustees.
Joseph Zolecki, program manager, financial regulatory services for BlueCross BlueShield Association, said the proposal would bring some rigor to the information flow between industry and regulators. Industry does not mind providing the information, he said. “It’s having to give it to you multiple, multiple times.”
Zolecki said in order for the model law to be approved by states, any final rule could not include any final corporate analysis by regulators at the end of the filing process. Zolecki said such an idea is “totally off the table.” Ridgeway told Best’s News Service that corporate analysis represents something similar to a regulators’ checklist and that industry is concerned because regulators who might be uncomfortable with the plan may want it. “We don’t see it as viable,” Ridgeway said.
The plan did not escape the panel without some initial criticism. Steve Johnson, Pennsylvania deputy insurance commissioner, voiced opposition to some parts of the proposal that he said gave industry veto power over regulators using third-party consultants when considering solvency. Ridgeway said he was willing to discuss the matter going forward.
Johnson said any final rule based on the proposal to start in 2016.
(By Thomas Harman, associate editor, BestWeek: Tom.Harman@ambest.com
