NAMIC Asks New Mexico Insurance Superintendent Not to Impose Unnecessary, Costly SOX-like Requirements on Small Insurers
NAMIC recently submitted written comments and provided testimony at a Public Regulation Commission’s Insurance Division public hearing on the adoption of a model audit rule for insurance companies urging the New Mexico PRC-ID to adopt the entire NAIC MAR The NAIC’s model was thoroughly debated and analyzed over a two-year evaluative process that considered how to best promote sound corporate governance practices and regulatory transparency without needless administrative costs and burdens on small insurers that would adversely impact market competition and the affordability of insurance for consumers.
New Mexico’s proposal fundamentally departs from the NAIC Model Audit Rule model in a number of significant and concerning ways. NAMIC raised the following issues:
- The proposal eliminates the NAIC MAR’s $500 million direct written and assumed premium threshold for requiring the filing of the Management’s Report of Internal Controls Over Financial Reporting. It would also create an impractical and unworkable requirement that domestic insurers report ‘Significant Deficiencies in Internal Controls,’ which is a much-stricter and burdensome standard than the NAIC MAR requirement of reporting only ‘Unremediated Material Weaknesses.’
- The department failed to provide any evidence to support the contention that the comprehensive NAIC MAR or the department’s current regulatory surveillance procedures do not provide consumers with necessary solvency protections and facilitate appropriate regulatory oversight.
- This proposal frustrates the very purpose of model regulations, i.e. to promote national uniformity and consistency in regulatory practices, so that insurers from different domiciled states can compete on a relatively level playing field and offer consumers a vast array of price-points and insurance products.
- It imposes new cost-drivers on small domestic insurers, thereby putting them at a competitive disadvantage in the New Mexico marketplace and would encourage insurers to engage in ‘regulatory forum shopping’ in an effort to avoid being domiciled in a state that imposes unnecessary economic burdens on small domestic insurers.
- The new version will not provide consumers with any better protection against an insurer becoming insolvent. Financial insolvency is pretty rare in the property and casualty insurance world, and when it does occur, state guaranty funds provide consumers with appropriate insurance coverage protections.
The NAIC MAR is a compromise model that should be implemented and evaluated before being discarded by the New Mexico Division of Insurance. It is flawed reasoning to assume that excessive regulatory oversight automatically equates to more effective regulatory oversight. The NAIC model has been adopted in 32 states and under deliberation in virtually every other jurisdiction.
Direct questions to NAMIC State Affairs Manager Christian Rataj.