The Cost Of Sarbanes-Oxley Provisions In A Model Audit Rule Is A Point Of Debate
By Jim Connolly
Cost will be one of the main arguments insurers advance when they make the case for dropping any provisions that replicate the Sarbanes-Oxley Act of 2002 in proposed Model Audit Rule regulation.
But some regulators, including Doug Stolte, assistant insurance commissioner with the Virginia Insurance Bureau, will be arguing that the cost of not using such a tool could be future insolvencies.
Stolte says regulators will hear the industry out but notes that other sectors of the financial services industry are required to attest to internal financial reporting controls in Section 404 of Sarbanes-Oxley and insurers should be no different.
Retaining this provision would allow regulators to focus more on compliance than on verifying balance sheets, he says.
During a hearing at the summer meeting of the National Association of Insurance Commissioners next month, insurers will discuss what they estimate will be the internal and external costs of complying with Section 16 of the proposed regulation, which is similar to Section 404 of Sarbanes-Oxley.
Insurers that are public companies already are complying with Sarbanes-Oxley. Under a provision in the Model Audit Rule model regulation, there is an exemption for companies with under $25 million in premium.
But for nonpublic insurers that could be required to comply with the provisions, there will be a hefty increase in cost, according to responses from 7 members of the National Association of Mutual Insurance Companies, Indianapolis. (See chart on page 25.)