The National Association of Insurance Commissioners has given its approval for a working group to begin drafting a revised corporate governance model law that would have insurers provide annual corporate governance filings. Insurance industry officials are expected to have a draft proposal of its own ready for consideration soon.
During a July 26 conference call, NAIC's Executive Committee/Plenary voted to have the working group start the process of creating the new draft. If the plan is ultimately approved, it would increase the frequency of such reports, which working group Chairwoman Susan Donegan said are generally received every three to five years. She told Best's News Service lengthy waits between corporate governance submissions are unacceptable in the post-2008 financial environment. "When a company goes into trouble, it's often because there's a problem at the top of the house," she said.
In making the request, the working group said the proposed model law would aid the collection of confidential information on insurers' corporate governance practices. It would allow regulators to improve their understanding of domestic insurers' governance practices, insure confidentiality of governance information collected by insurers, and identify overlapping or redundant requests for information that could be removed from other areas of the regulatory reform process, the request said.
Donegan said that the working group's meeting in Indianapolis in late August would mark the beginning of work on the document. The group would talk about how to conduct the work and how it would integrate different parties into the process.
A starting point is Exhibit A of the working group's earlier White Paper on the subject. It consists of interrogatories that provide information about an organization's strategic planning, including whether and how often strategic plans are updated. Donegan said such information is needed from the corporate governance level to ensure a company board understands and can articulate the company's risk profile as well as how to mitigate risk. "Those types of discussions topics let us know that the board is vigorously involved," she said, adding that it allows for information about auditing, nominations, and whether there are protections against conflict of interest.
Industry officials are set to make the first move in the debate by offering their own draft document in the days prior to the NAIC's Summer Meeting in Indianapolis Aug. 23-27, said Adam Kerns, assistant general counsel at the American Insurance Association. Industry officials are preparing to discuss their plan at the working group's meeting. Prior to the meeting, industry officials are setting up meetings with individual working group members to find what concerns they might have.
Kerns said the insurance industry seeks a means by which it can remove redundancies in filing corporate governance information in the new model law. And he said that much of the industry's plan for confidentiality in filing is similar to that in the Own Risk Solvency Assessment Model Law that NAIC passed last September. "That [ORSA confidentiality] language is very strong," he said. "How can somebody say they're for ORSA and not for the confidentiality language here."
Donegan ultimately seeks to supervise the drafting of a model law that has clear confidentiality rules that states can adopt and use. She said confidentiality of information has been a concern of both regulators and industry throughout the discussions to this point. "We know as regulators that without confidentiality we jeopardize the level of candor we can engage in with the companies," she said.
The request for model law development said it is likely that the committee would draft and adopt the model within one year and that the necessary two-thirds majority of NAIC members would approve a proposed model law. Also, the document said state legislatures are likely to adopt the model law within three years' time.
An initial effort to conduct corporate governance information collection as part of a risk-based plan was under consideration last year, but industry officials backed away from the idea in the face of industry opposition. "There was too much variability among the states," Donegan said. "It was not uniform enough to be a really good tool."