Mass. 'Board' Program Eyed By Other States
By Jim Connolly
NU Online News Service, Nov. 5, 12:00 p.m. EST?As a Massachusetts initiative to meet with the boards of directors of insurance companies reaches the half-way mark, other regulators are considering similar programs.
Those jurisdictions include the District of Columbia, New Jersey and North Dakota, said Massachusetts Insurance Commissioner Julianne Bowler in an interview with National Underwriter.
At a time when state insurance departments are facing budget challenges, meeting with companies' boards can help detect financial problems early on, Ms. Bowler said.
To date, 16 companies have been visited, 10 of which are company groups. At year end, it is anticipated 23 companies will have been visited.
Massachusetts has 114 individual domestic companies, with two-thirds of those companies in the property-casualty market. The department intends to have all meetings completed by June 2004.
By meeting with a company's board of directors, a process of "self-reflection and self-correction" can be fostered, Ms. Bowler maintained.
Early detection of financial stress can ensure that company failures are "not clobbering the guaranty fund," she said.
Often, education of the board is at issue rather than corporate governance, Ms. Bowler concluded.
In addition to understanding investments and matters such as diversification, a board of directors also must have a handle on industry-specific issues including underwriting, regulatory and legislative concerns, she added.
For instance, she said that in meetings with insurers, a regulator can engage the board in a discussion of risks inherent in a particular product.
Traditionally, "companies have been handmaidens to financials, but boards of companies must also pay attention to risks that can kill a company quicker," Ms. Bowler said.
She added that boards must not only understand financials but statutory financials. The degree of familiarity with statutory accounting varies, depending on the background of a board member, such as actuarial knowledge, Ms. Bowler continued.
What's more, when a meeting is treated as a discussion rather than a confrontation, she noted that in a number of cases board members become visibly more relaxed.
For those boards that could be more independent from management, Ms. Bowler said suggestions for replacements are offered when a member's term is about to expire.
Degree of independence varies, she said. For stock companies that comply with the Sarbanes-Oxley Act of 2002, work has already been done to ensure that boards are independent and that adequate auditing systems in place, Ms. Bowler added.
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