Corporate Governance Annual Disclosure: Expect More State Action in 2018
The NAIC adopted the Corporate Governance Annual Disclosure Model Act and corresponding Model Regulations (“CGAD”) in late 2014 with the intent that the filing requirement would be effective in 2016. Shortly thereafter, the NAIC’s Corporate Governance Working Group proposed that CGAD be added as an accreditation standard. Despite these actions in 2014, state legislatures have been relatively slow in enacting CGAD as compared to other NAIC initiatives that arose from its Solvency Modernization Initiative (fewer than 10 states adopted CGAD in time to have a 2016 filing date; currently 21 states have adopted or introduced the CGAD filing requirement). Indeed, at meetings of the NAIC’s Financial Regulation Standards & Accreditation Committee (“F Committee”), several regulators expressed concern about moving forward with the adoption of CGAD as an accreditation standard, with at least one state regulator advising of concerns about the necessity of another new annual filing requirement and the significant costs and burdens on insurers for compliance with little or no additional consumer protections. Indeed, the significant number of new filing requirements coming out of the NAIC’s Solvency Modernization Initiative and the escalation of other types of risks insurers and insureds (e.g. cyber risks) may be the greater reason why CGAD has been slow to gain priority in state legislative agendas.
Expect more state action in 2018 due to the F Committee’s approval to adopt CGAD as an accreditation standard effective January 1, 2020 at the NAIC’s December National Meeting. Thus, states that have not taken action on CGAD to date now have two years to adopt the annual CGAD filing requirement if they want to maintain accreditation.
What should insurers be doing in anticipation of the CGAD filing requirement? Unlike other new filing requirements arising from the NAIC’s Solvency Modernization Initiative, there is no exemption from the CGAD filing requirement. Thus, all insurers should be preparing now to comply with this significant new annual filing requirement. Understanding the type and scope of information that must be filed is critical to preparing for this new requirement. In addition, to the extent an insurer or insurer group has not recently analyzed the appropriateness and effectiveness of its corporate governance structure and practices, the time to do so is now and not when the filing deadline is imminent. While the analysis will assist in preparing for CGAD, it will also allow for proactive implementation of procedures that are more closely aligned to “best practices” principles and standards identified by the NAIC as part of its deliberations on CGAD.