The National Association of Mutual Insurance Companies has urged the National Association of Insurance Commissioners’ to table its current proposals to adopt parts of the federal Sarbanes-Oxley Act as part of state solvency regulations, indicating that such additions would be of doubtful value and would add unnecessary costs.
In testimony before the NAIC/AICPA Working Group filed Wednesday, NAMIC gave estimates of the costs of implementing the most onerous sections of a proposal floated earlier this year to embed elements of the federal Sarbanes-Oxley Act in the NAIC’s Model Audit Rule.
The association’s testimony indicated that estimated added costs would range “from 81 percent to 123 percent for internal compliance in hypothetical first-year implementation and 61 percent to 76 percent incremental costs for auditors’ services. Ongoing costs of compliance would be somewhat lower.”
The NAMIC testimony also emphasized that state insurance regulatory powers already protect consumers.
“These estimates are from the NAMIC membership of mutual companies and forecast millions and millions of dollars of extra costs to be borne by insurers,” stated William Boyd, NAMIC’s financial regulation manager. “What we question, and what regulators need to be thinking about, is whether insolvencies will be prevented or detected earlier as a result of these very large additional costs. Is there, in other words, benefit for such cost?”
“We understand that Sarbanes-Oxley applies to investor-owned insurers because they are in the public capital markets, but there is no defensible reason to extend Sarbanes-Oxley into state regulation of insurance,” Boyd continued. “The value just isn’t there. Insurers are already subject to a regulatory apparatus of enormous power and breadth that works affirmatively for policyholders.”
The bulletin noted that “the NAIC proposal would impact mutual insurers most heavily, since they are not now subject to Sarbanes-Oxley, which was passed by Congress to protect shareholders in the wake of Enron, Tyco and other scandals.”
Boyd noted that “in testimony earlier this year, we told the NAIC/AICPA Working Group that Sarbanes-Oxley is intended for protection of investors in public companies and wholly inappropriate for regulation of insurance, where a broad and potent range of regulatory measures is already available to enforce the promises made by insurers and their ability to pay claims on those promises.”
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