At a time when corporate board members are being spotlighted following the fiasco at Enron and other financially troubled firms, it was alarming to hear Massachusetts insurance regulators complain that they found a high degree of ignorance in insurer boardrooms about the basic workings of the business.
Many “lack basic knowledge of products, risks and statutory accounting,” Massachusetts Insurance Commissioner Julianne Bowler said during a recent seminar. As one example, she said some directors did not even know the difference between personal and commercial lines. In another example, Bowler said that some directors could not say whether a current IT system would support a new product.
She also said her department failed to find vigorous oversight by board directors at some carriers. In such companies, she reported, directors either “completely acquiesced to management or asked perfunctory questions.” Not exactly the watchdogs that shareholders expect.
Findings of such shallow board knowledge and lax oversight would be unacceptable at any time, but with recent corporate governance scandals undermining confidence in the stock market and sending directors and officers liability rates soaring, these allegations are particularly worrisome.
Ms. Bowlers department is developing a program to make sure insurer board members do their jobs in keeping their insurance companies financially strong. She said carriers will be examined for corporate governance, and then ranked by the department in order of work that needs to be done to bring the board up to snuff.
Its an example other state insurance departments would be wise to follow.
Reproduced from National Underwriter Edition, May 19, 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.