Massachusetts Regs Meet Boards; Program Considered By Other States
As a Massachusetts initiative to meet with the board of directors of insurance companies reaches the halfway mark, other regulators are considering similar programs.
Those jurisdictions include the District of Columbia, New Jersey and North Dakota, Massachusetts Insurance Commissioner Julianne Bowler told National Underwriter.
In Massachusetts, roughly 16 companies have been visited to date, and 23 will have been visited by year-end 2003, according to the department.
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.
In a time when state insurance departments are facing budget challenges, meeting with companies boards can help detect financial problems early on, Ms. Bowler said.
By meeting with a companys 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, it is more an issue of education rather than of corporate governance, according to the Massachusetts commissioner.
In addition to understanding investments and issues such as diversification, it is also necessary for a board of directors to have a handle on industry-specific issues, including underwriting and regulatory and legislative issues, she added.
For instance, she said that in meetings with companies that sell long term care insurance, a regulator can engage the board in a discussion over the risks that are inherent in that product.
Traditionally, "companies have been handmaidens to financials, but boards of companies must also pay attention to risks that can kill a company quicker," she said.
And, she added, boards must not only understand financials, but statutory financials. The degree of familiarity with statutory accounting varies, depending on background such as actuarial knowledge, she said.
When the meeting is treated more as a discussion rather than a confrontation, in a number of cases, Ms. Bowler said that you could actually see members physically relax.
For those boards that could be more independent, Ms. Bowler said suggestions are offered when making replacements as members terms expire.
The degree of independence varies, she said. For stock companies that comply with the Sarbanes-Oxley Act of 2002, there has already been work devoted to ensuring that there is independence and adequate auditing systems in place, she said.
Jim Connolly is a senior editor for NUs Life-Health & Financial Services edition
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 14, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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