NU Online News Service, May 27, 2004, 6:07 p.m. EDT – The National Association of Insurance Commissioners will hold a hearing next month on the cost of including financial control attestation requirements in the proposed Model Audit Rule.[@@]
Some state regulators at the Kansas City, Mo., group want the rule to include a provision, Section 16, which would resemble Section 404 of the Sarbanes-Oxley Act of 2002.
SOX Section 404 requires company managers to assess their companies’ financial controls and have auditors attest to the effectiveness of the companies’ financial controls and reporting procedures.
Insurers might complain about the cost of Section 16 compliance, but publicly traded insurers and companies in other financial services sectors already have to comply with SOX Section 404, according to Doug Stolte, an assistant insurance commissioner in the Virginia Bureau of Insurance.
Retaining an attestation provision in the Model Audit Rule would help regulators focus more on compliance and less on verifying balance sheets, Stolte says.
Section 16 of the model regulation would exempt insurers with less than $25 million in annual premium revenue.
But 7 members of the National Association of Mutual Insurance Companies, Indianapolis, say complying with Section 16 would lead to hefty increases in costs for affected insurers.
When Foley & Lardner L.L.P., Chicago, a law firm, surveyed companies of all kinds that must comply with SOX Section 404, it found that the 115 participants said the law had increased average compliance costs for a company with under $1 billion in annual revenue 130%.
The American Council of Life Insurers, Washington, says it is not uncommon for companies to spend between 30,000 and 60,000 hours of internal and external advisor time complying with internal control requirements associated with Section 404. One survey that ACLI cites, by Financial Executive International, Morristown, N.J., found that the total cost of first-year Section 404 compliance could exceed $4.6 million for the largest U.S. companies.