There are new transparency measures by the National Association of Insurance Commissioners (NAIC); the agency recently adopted a Corporate Governance Annual Disclosure Model Act and supporting Model Regulation, which will provide a new way for insurance regulators to receive more additional information annually on the corporate governance practices of U.S. insurers.
The adoption of the new regulations is the culmination of nearly five years of discussion and work regarding regulatory guidance that details best practices for the corporate governance insurers. “This model act was developed to promote regulatory oversight as well as protect the confidentiality of the insurer,” said Susan Donegan, commissioner of the Vermont Department of Financial Regulation and chair of the Corporate Governance Working Group.
The NAIC is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories.
The NAIC’s disclosure of corporate governance practices of insurers will ensure that state regulators have a comprehensive understanding of the corporate governance structure, policies and practices utilized by the insurer.
Under the act’s requirements, U.S. insurers must provide a detailed narrative that describes governance practices to lead their state or domestic regulators by June 1st of each year. The narrative will be protected by strict confidentiality measures, which were included within their models to encourage insurers to be open and transparent in describing their governance practices to regulators. According to the NAIC, insurers are allowed some discretion in determining the level within the organization to reporter their corporate governance practices at, depending upon their structure and organization. The new disclosure requirements are set to begin in 2016.
Key items required to be described within the corporate governance disclosure include:
- The insurer’s corporate governance framework and structure including duties and structure of the board of directors and its committees;
- The policies and practices of its board of directors and significant committees including appointment practices, the frequency of meetings held and review procedures;
- The policies and practices directing senior management including a description of defined suitability standards, the insurer’s code of conduct and ethics, performance evaluation and compensation practices, and succession planning; and
- The processes by which the board of directors, its committees and senior management ensure an appropriate level of oversight to the critical risk areas impacting the insurer’s business activities including risk management processes, the actuarial function, and investment, reinsurance and business strategy decision-making processes.