Keeping tabs on transparency
“In life there are lines that shouldn’t be crossed — but when they are, great drama is born.”
Quoting from the “Desire Under the Elms” playbill at the Lesher Regional Center for the Arts in Walnut Creek, Calif., Paul Sachs, managing director for the Los Angeles office and Pacific Southwest region for Protiviti, said that the line from the play “speaks well to what is going on in corporate America.”
As one of the featured speakers at the 7th Annual Educational Forum, “Forecasting the Future,” presented by the Insurance Edu-cational Association and Mt. Diablo Chapter of Chartered Property Casualty Underwriters Society, Sachs discussed how transparency is changing the insurance industry.
“In the past couple of years, the spotlight has come to the insurance industry,” he said. Accounting failures such as with Enron, and financial services industry failures, such as with Merrill Lynch, or those that involve brokerage advice, insure bid rigging and contingent commissions “have cascaded.” But what has “clearly come out in time is a loss of investor and consumer confidence, and a need for greater accountability among companies,” he said.
The Sarbanes-Oxley Act was supposed re-establish trust in corporations and create financial transparency and management ethics — at least in public companies. “But after three years of SOX, what’s changed?” Sachs asked. “Some would say disclosures have improved, others say it’s more cumbersome and others say it hasn’t gone far enough. No one has been prosecuted, but it has received a lot of people’s attention and introduced rigor into the system.”
The insurance industry, meanwhile, has voluntarily disclosed more information to customers, Sachs said. The National Association of Insurance Commissioners introduced a compensation disclosure model, but more voluntary disclosures are taking place. “It’s a lot better to lead than to be pushed,” he said.
The federal government continues to debate whether federal oversight is necessary, he said, and California’s insurance commissioner initially took a “heavy start” to impose fiduciary duties on agents and brokers, but publicly withdrew the proposal last fall. With all the actions taking place by the industry, as well as governments, “disclosure, for consumers, is heightened, but I’m not sure what they think about it,” Sachs said. Nevertheless, he believes the industry has learned that transparency overall is good, although “the jury is still out on how good,” he said.