The announcement that the New York State Insurance Department will require the chief executives of the insurance companies it regulates to certify under oath that certain insurance transactions (specifically, finite reinsurance) were conducted for legitimate economic reasons and not as a way to manipulate financial reporting results made me recall the bad old days of junior high school. Back then, there were always a few people who believed the rules did not apply to them - resulting in the expected mix of bullying, vandalism and cheating. Inevitably, the misdeeds of these kids would become impossible to ignore. The result? A new set of more-stringent rules that made life more difficult for everyone.
In the business world, as in junior high school, there are regulations and guidelines by which most people abide, even if some of those rules seem unnecessarily complicated or outdated. But inevitably, there are some people who decide the rules do not apply to them (or their companies). Karma being what it is, not only is there eventual retribution for this kind of arrogance, but usually everyone in the industry ends up paying a price in terms of increased and even more-complex regulation.
Sarbanes-Oxley is the perfect example. Whether or not you think the regulation is realistic, annoying or essential, it cannot be denied that it was promulgated in response to a series of highly destructive actions on the part of two groups of individuals: those who believed the rules did not apply to them and those who knew better but couldn't be bothered to set an example by following and enforcing the rules.
Now comes the new directive from the New York insurance department. It's tempting to call this "Sarbox for Insurance" - or, perhaps more accurately, "Hank's Law," since it clearly arose from the ongoing investigations of questionable accounting practices at AIG, which was run until last month by the legendary Maurice "Hank" Greenberg. The sad story of Greenberg's Eliot Spitzer-pressured resignation is being viewed as both tragedy and cautionary tale. But, as in junior high school, it's ultimately others - technology executives and managers, line-of-business heads, support staffs - who will have to pick up the pieces at AIG and elsewhere in the industry and figure out how to stretch limited IT resources to provide the documentation, transparency and accountability that the new regulations demand.
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio