 |
ARIZONA STATE SENATE
Fifty-Fourth Legislature, First Regular Session
insurance; corporate governance; disclosure
Purpose
Requires insurers to submit to the Director of the Department of Insurance (DOI) a corporate governance annual disclosure (CGAD) and regulates confidentiality of provided documents, materials and other information.
Background
Corporate governance is described by the National Association of Insurance Commissioners (NAIC) as the system of rules, practices and processes by which an insurance company governs itself. Corporate governance includes not only the obvious corporate structure (board of directors, senior management, business area functions, etc.), but also a company’s organizational culture (values, ethics, etc.), strategies and controls, as well as all governing documents that capture the spirit and the letter of a company’s guiding principles and mandates.
In 2012, the NAIC formed the Corporate Governance Working Group to outline high-level corporate governance principles for use in insurance regulation and to develop regulatory guidance, including detailed best practices, for the corporate governance of insurers. The Model Act is an accreditation requirement, effective January 1, 2020. Upon state adoption of the NAIC models, each U.S. insurer or the insurance group in which the insurer is a member, must submit a CGAD to its lead state or domestic regulator on an annual basis.
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
1. Requires an insurer to submit to the Director of the DOI (Director) a CGAD.
2. Requires the insurer to submit the CGAD to the chief regulatory official of the lead state for the insurance group, as determined by the procedures outlined in the most recent financial analysis handbook that is adopted by the NAIC.
3. Requires the CGAD to include a signature of the insurer or insurance group's chief executive officer or corporate secretary attesting to the individual's belief that the insurer had implemented the corporate governance practices and that a copy of the disclosure has been provided to the insurer's board of directors or the appropriate committee of the board.
4. Requires an insurer that is not required to submit a CGAD to do so on the Director's request.
5. Allows the insurer or insurance group, for the purposes of completing the CGAD, to provide information regarding corporate governance at the ultimate controlling parent level, an intermediate holding company level or the individual legal entity level.
6. Specifies that the insurer or insurance group is encouraged to make the CGAD at the level at which risk appetite is determined, at which the earnings, capital, liquidity, operations and reputation of the insurer are overseen collectively and at which the supervision of those factors are coordinated and exercised, or the level at which legal liability for failure of general corporate governance duties would be placed.
7. Requires that the review of the CGAD shall be made through the lead state as determined by the most recent NAIC financial analysis handbook.
8. Specifies that insurers that already provide information that is substantially similar to that required by this article, are not required to duplicate that information in the CGAD but are required to cross-reference the document in which the information is included.
9. Allows the Director to adopt rules and issue orders necessary to carry out this article.
10. Stipulates that the insurer or insurance group has discretion over the responses to the CGAD inquiries, if the CGAD contains the material information necessary to allow the Director to gain an understanding of the insurer's corporate governance structure.
11. Allows the Director to request additional information to provide the Director with a clear understanding of the corporate governance policies.
12. Requires the insurer to prepare the CGAD consistent with rules adopted by the DOI.
13. Requires documentation and supporting information to be maintained and made available on examination or on the request of the Director.
14. Recognizes that the documents and materials, including the CGAD, that are in the possession of the DOI, are proprietary and contain trade secrets. All such documents, materials or other information are confidential by law and privileged.
15. Stipulates that the Director is authorized to use the documents in the furtherance of any regulatory or legal action brought as a part of the Director's official duties.
16. Prohibits the Director from otherwise making the documents, materials or other information public without the prior written consent of the insurer.
17. Prohibits the Director, or another person who receives documents or other CGAD-related information, from testifying in any private civil action concerning any confidential documents, materials or other information.
18. Allows the Director, in order to assist in the performance of the Director's regulatory duties, to:
a) share CGAD-related documents and materials, including proprietary and trade secret documents, with other state, federal and international financial regulatory agencies, including members of a supervisory college, the NAIC and third-party consultants, if the recipient agrees in writing to maintain confidentiality; and
b) receive CGAD-related documents and materials from other state, federal and international financial regulatory agencies, including members of a supervisory college and the NAIC, and maintain these documents as confidential or privileged.
19. Stipulates that the sharing of information and documents by the Director does not constitute a delegation of regulatory authority or rulemaking and the Director is solely responsible for the administration, execution and enforcement of this article.
20. Stipulates that the disclosure of CGAD-related information to the Director does not constitute a waiver of any applicable privilege or claim of confidentiality in the documents, proprietary and trade-secret materials.
21. Allows the Director to retain, at the insurer's expense, third-party consultants, including attorneys, actuaries, accountants and other experts not otherwise a part of the Director's staff, as may be reasonably necessary, to review the CGAD. These persons are under the direction and control of the Director and shall act in a purely advisory capacity.
22. Specifies that the NAIC and third-party consultants are subject to the same confidentiality standards and requirements as the Director.
23. Requires a third-party consultant to verify to the Director, with notice to the insurer, that the third-party consultant does not have a conflict of interest and shall comply with the confidentiality standards and requirements.
24. Requires a written agreement with the NAIC or a third-party consultant to contain:
a) specific procedures and protocols for maintaining the confidentiality and security of CGAD-related information;
b) procedures and protocols for sharing by the NAIC only with other state regulators from states in which the insurance group has domiciled insurers;
c) a provision that specifies that ownership of the CGAD-related information remain with the DOI and that the NAIC or third-party consultant's use of the information is subject to the direction of the Director;
d) a provision that prohibits the NAIC or a third-party consultant from storing the information in a permanent database after the underlying analysis is completed;
e) a provision that requires the NAIC or a third-party consultant to provide prompt notice to the Director and to the insurer regarding a subpoena, request for disclosure or request for production of the insurer's CGAD-related information; and
f) a requirement that the NAIC or a third-party consultant consent to intervention by an insurer in any judicial or administrative action in which the NAIC or a third-party consultant may be required to disclose confidential information.
25. Allows the Director, after notice and a hearing, to impose a civil penalty of $20 for each day's delay, not to exceed $2,500, if an insurer fails without just cause to timely file the CGAD.
26. Requires the Director to collect a civil penalty and deposit the monies in the state General Fund.
27. Allows the Director to reduce the penalty if the insurer demonstrates to the Director that the imposition of the penalty would constitute a financial hardship to the insurer.
28. Exempts the DOI from rulemaking requirements for one year.
29. Specifies that if the confidentiality provisions included in the act are finally adjudicated as invalid, the entire act is void.
30. Defines terms.
31. Becomes effective on the general effective date.
Prepared by Senate Research
January 14, 2019
CS/kja