NAMIC Resists Getting Shoved Into SOX Drawer

Should mutual insurers face similar internal control rules to those imposed by Congress on public companies in the wake of corporate accounting scandals that rocked the financial world?

Many state insurance regulators said yes, but mutual insurers resisted fiercely, contending that the enormous cost in time and money to meet such a heavy regulatory burden was unnecessary to ease any solvency concerns.

A fierce argument took place over the course of the year over how far mutuals would have to go to prove the reliability of their financial statements. While regulators took a big step this month to settle the dispute once and for all, at least one major group is not prepared to concede the point.

The National Association of Insurance Commissioners, after much give and take with industry critics, is moving forward with a scaled-back version of its original plan to beef up the Model Audit Rule’s demands on mutuals. The proposal still must clear the NAIC-AICPA Working Group, and then go to individual states for approval.

The issue has split the industry. A representative of the Property Casualty Insurers Association of America called the compromise “an excellent example of a situation where the industry and regulators have rolled up their sleeves, put individual agendas aside, and worked together to develop a solution that is workable and acceptable for both parties.”

However, the National Association of Mutual Insurance Companies insists that even the scaled-down measure does not “meet the hurdle of cost-effectiveness.” NAMIC’s board voted unanimously to continue the group’s opposition.

“Our members favor voluntary, common-sense internal controls, but do not support a regulator mandate that can be changed at some later date,” said NAMIC’s president and CEO, Chuck Chamness, pointing out that Congress did not apply SOX mandates on non-public companies.

Can NAMIC fend off this initiative, especially without full industry support, and with states risking the loss of their NAIC accreditation if they decline to get on board? It will be an uphill battle indeed.

“This is a solution in search of a problem, and the price tag cannot be ignored.” - Chuck Chamness, NAMIC President