NAIC Model Audit Rule: Will the Road be Bumpy or Smooth?
In 2006, the National Association of Insurance Commissioners (NAIC) adopted revisions to the Model Audit Rule (MAR), and as a result, states will be considering adoption of the new provisions either through legislative changes or through regulations. The purpose of this regulation is to improve the state insurance departments’ surveillance of the financial condition of insurers. Any individual or stand-alone nonpublic company that files an annual statement with its domiciliary state regulator, including insurance companies, captive insurance companies, nonprofit insurers or health plans, is affected.
Once adopted by the states, the first management report of internal control over financial reporting (similar to the report required by Section 404 of the Sarbanes-Oxley Act) will be due in 2011 for the 2010 reporting period. Although an organization’s natural instinct may be to “wait and see” what happens before it begins the MAR implementation, lessons learned from Sarbanes-Oxley Section 404 indicate that a significant amount of time, effort, resources and costs were required for companies to reach compliance. Therefore, a “staged implementation” may be the most effective and efficient approach to implementing the MAR.
Our point of view titled "NAIC Model Audit Rule: Will the Road be Bumpy or Smooth" points out several myths surrounding implementation of the MAR, and provides a practical approach to developing a readiness action plan that should help make the road to readiness a “smoother” experience.