Currently, 22 states (CA, CT, DE, FL, ID, IN, IA, KS, LA, ME, MT, NE, NV, NH, OH, OR, RI, VT, VA, WA, WI, WY) have adopted the Model Act and 17 states (CA, CT, DE, FL, ID, IN, IA, LA, MT, NE, NH, NV, OH, OR, VT, VA, WY) have adopted the Model Regulation. While not a current NAIC accreditation requirement, many expect universal adoption of both the CGAD Model Act and Model Regulation.
The Model Act generally requires that the CGAD provide sufficient information for the insurance commissioner to understand the insurer or insurance group’s corporate governance structure, policies, and practices. However, Section 5 of the Model Regulation contains more specific requirements. At a minimum, the CGAD is required to address:
The insurer’s corporate governance framework and structure;
- The policies and practices of its board of directors and significant committees;
- The policies and practices directing senior management; and
- The processes by which the board of directors, its committees and senior management ensure an appropriate level of oversight over the critical risk areas impacting the insurer’s business activities.
Those states that have adopted both the Model Act and the Model Regulation have required that the CGAD be consistent with the Model Regulation and contain the information listed in Section 5 thereof. For example, Connecticut, Florida, and Louisiana generally require that the CGAD that contain: (i) a description of the insurer’s or insurance group’s corporate governance framework and structure; (ii) a description of the policies and practices of the board and each significant committee thereof; (iii) a description of the board’s processes to evaluate its performance and the performance of its committees and any recent measures taken to improve performance, including any board or committee training programs that have been put in place; (iv) a description of the insurer’s or insurance group’s policies and practices for directing senior management; and (v) a description of the insurer’s or insurance group’s processes by which the board, each significant committee thereof, and senior management ensure an appropriate amount of oversight of the critical risk areas impacting the insurer’s or insurance group’s business activities.
Other states, like Kansas and Maine, which have adopted the Model Act but have not adopted the Model Regulation, generally require that the CGAD provide sufficient information for the insurance commissioner to understand the insurer or insurance group’s corporate governance structure, policies, and practices
Some states have already begun collecting CGADs from insurers and insurer groups. Connecticut’s CGAD law, which became effective Jan. 1, 2017, provides that, not later than June 1, 2017, an annually thereafter, each domestic insurer or the insurance group of which such insurer is a member must submit to the Connecticut Insurance Department. Florida’s CGAD law went into effect on Oct. 1, 2016 and requires that an insurer, or insurer member of an insurance group, of which the Florida Office of Insurance Regulation (“OIR”) is the lead state regulator shall submit a CGAD to OIR by June 1 of each calendar year. However, unlike Connecticut’s CGAD law, which only gave insurers and insurance groups a six-month window within which to submit a CGAD, Florida’s CGAD law requires that insurers and insurance group’s file their first CGAD’s with OIR by Dec. 31, 2018.
Regardless of whether they are currently required to do so, insurers and insurer groups should assess their internal corporate governance structures and processes and determine whether they are prepared to file a CGAD once the Model Act, Model Regulation, or both are adopted by their lead states. Boards should educate themselves on the Model Act and Model Regulation and consider whether their governance structures and policies are adequate. Has the organization formed committees to assist the board in carrying out its functions? Has the board assessed whether it possesses the necessary skill sets to fulfill its responsibilities? If an organization is not prepared to make a CGAD filing or is concerned that its governance structures or processes may need to be augmented, now is the time to strategize and implement appropriate governance mechanisms.
This article first appeared in the Spring 2018 issue of The Demotech Difference, a publication of Demotech, Inc., www.demotech.com.