Sarbanes-Oxley governs financial reporting for publicly traded companies, but mutual insurers will likely to be held to very similar standards, according to industry sources."There has been some discussion in the insurance world about whether mutual companies will have to comply with SOX-and from a practical standpoint, they just about have to," says John Sarich, insurance industry marketing manager for FileNet Corp., Costa Mesa, Calif.

If a mutual life insurance company sells annuity products, for example, that insurer will have to track account changes according to SOX rules just as a brokerage firm that sells annuities, he says. "So, if you're an annuity company, and a customer calls and says, 'I want to move my money from the bond fund to the stock fund,' you'll have to record and track the request-as well as what you told the customer."

In addition, the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., will most likely adopt very similar financial reporting requirements as SOX. And states eventually may take over enforcement of the federal rules, according to sources.

"A lot of states are looking at SOX enforcement and Gramm-Leach-Bliley enforcement because they fear the Feds coming in and taking it all over," Sarich says.

Mutual insurers are not accustomed to such stringent financial reporting requirements-and they'll find them difficult and expensive, says Dianne Lyons, controller of United Fire Group, a publicly traded P&C insurer based in Cedar Rapids, Iowa.

After successfully implementing the WINGS Financial Reporting software from Eagle Technology Management Inc., Marion, Iowa, for NAIC financial reporting, Lyons is considering the technology implications of SOX for her company.

"We build most of our own systems, such as underwriting and claims," she says. "So we have the ability to go in and put our controls within those systems. The more you can build controls in the system versus coming back and checking the reports manually after the fact, the better."

Enforcing internal financial controls is a very easy concept to sell to senior management in insurance companies-both public and mutual-because they're in the business of managing risk, says Timothy Plunkett, global insurance industry consultant at PeopleSoft Inc., Pleasanton, Calif.

"I thought mutual companies would be a lot more reluctant toward the NAIC's plans to impose SOX standards on them too, but it just makes good business sense. If stock companies have to comply with SOX, the mutual companies also need to. It's just a best practice," he says.

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