Insurers Urged To Emphasize Corporate Governance, Transparency
Given the recent spate of accounting scams and the bearish stock market, it is particularly important for the insurance industry to emphasize corporate governance and transparency in financial reporting, according to executives speaking at the recent annual meeting of the Washington-based International Insurance Society.
“We are in the business of financial services, and confidence and integrity is integral to the industrys success,” said Douglas Leatherdale, chairman of the New York-based IIS. Leatherdale is the retired chairman and CEO of The St. Paul Companies.
“We have to pay close attention to corporate governance to ensure that values and integrity are properly instilled. Otherwise, customers will lose confidence; and those who lose track of customers are going to be severely punished,” he said.
“Analysts have always had a certain level of discomfort with insurance because of its unique regulatory status, accounting practices and business language,” said Patricia L. Guinn, managing director of Tillinghast-Towers Perrin and Towers Perrin Reinsurance in New York.
“Recently, large-scale business failures and regulatory pressure for international accounting standards have brought financial disclosure and transparency to the forefront,” she said.
“The investment community is also much more focused on corporate governance and auditor independence issues than in the past. Companies that respond by making their value drivers and the risks associated with them more transparent will likely win greater trust from the investment community,” Guinn affirmed.
Leatherdale commented that it would be a real disaster now for a large insurer to get into trouble.
“There always have been failures, but if a major insurance firm failed at this juncture, it would be blown out of proportion because there is a general atmosphere of mistrust and uncertainty in all business sectors,” he said.
Richard Harvey, group chief executive of London-based CGNU plc, said non-executives should take greater responsibility in the boards of companies than they have so far.
Executive directors should impart “understandable and concise” information on market conditions to non-executive directors, he said.
Though it is evident that improved transparency in financial reporting can help the insurance business ward off a lot of potential dangers, there is a good amount resistance to it from senior executives in insurance firms, according to Guinn.
These executives have legitimate concerns about confidentiality and retaining competitive advantage, and they are struggling to find the right balance, she said.
The climate has definitely changed and it is time insurance companies woke up to the strident demand among investors for greater transparency in financial reporting, she said.