Audit Rule A Confidentiality Worry

Confidentiality of an auditor's documents is one issue insurers are raising with regards to the development of amendments to a Model Audit Rule (MAR) currently being worked on by state insurance regulators.

The changes to MAR are being examined by the National Association of Insurance Commissioners/American Institute of Certified Public Accountants (NAIC/AICPA) working group.

During a recent discussion with regulators about the amendments, Randi Reichel, a state affairs representative for America's Health Insurance Plans, Washington, stressed that enhanced reporting requirements should be accompanied by changes that would ensure confidential information is protected.

It is important that there be protections in place to keep confidential documents from becoming accessible to the public through Freedom of Information Act requests, she continued.

Of concern is the Section 11 report, Ms. Reichel said. "It is really critical that this information be kept confidential."

Section 11 of MAR addresses the accountant's report on internal controls. The draft requires a written report describing unremediated material weaknesses in an insurer's internal control structure.

Doug Stolte, chair of the NAIC/AICPA working group and deputy insurance commissioner in Virginia, said he understands why companies would be concerned that class action attorneys might use information meant for regulators.

In Virginia, he continued, an item such as a significant deficiency in internal controls is considered part of a company examination which would have confidentiality protections.

Ms. Reichel responded that in states such as Virginia where such protections exist, that is a positive for companies. However, she continues, that is not uniformly true across the states.