Some regulators, including Doug Stolte, assistant insurance commissioner with the Virginia Insurance Bureau, have voiced the position that the cost of not using such a tool could be future insolvencies.

Mr. Stolte noted that other sectors of the financial services industry are already required to attest to internal financial reporting controls in Section 404 of Sarbanes-Oxley and insurers should be no different.

Retaining this provision would allow regulators to focus more on compliance than on verifying balance sheets, he said.

Insurers that are public companies are already complying with Sarbanes-Oxley. Under a provision in the Model Audit Rule model regulation, there is an exemption for companies with under $25 million in premium and non-public insurers are not covered.

The National Association of Mutual Insurance Companies sampled seven large and small non-public insurers for their estimates of the costs involved in adopting the federal provisions. The firms calculated in the first year the internal cost increase would range from 81 percent to 123 percent and external cost would go up 67 percent to 76 percent.

Estimates of ongoing internal cost increases ranged from 51 percent to 57 percent, and ongoing external costs from 60 percent to 64 percent.

Insurers can also point to a survey conducted by the Chicago law firm, Foley & Lardner, LLP. One hundred and fifteen firms from all industries were polled. The survey found that the average Sarbanes-Oxley impact on a company with annual revenue under $1 billion increased audit cost $1.6 million or 130 percent from the inception through fiscal year 2003, including an increase of $736,000 during FY 2003.

The American Council of Life Insurers, Washington, says it is not uncommon for companies to spend between 30,000 and 60,000 hours of internal and external advisor time complying with internal control requirements associated with Section 404. ACLI also cited a survey of 321 companies by Financial Executive International which found that total costs of first-year compliance with Section 404 could exceed $4.6 million for each of the largest U.S. companies.

Responding to regulators' statements that the provisions in the model could stave off insolvencies, ACLI said that in 51 percent of cases, insolvencies are caused by insufficient and/or inadequate pricing.

"SOX was designed for companies that have significantly less disclosure in their financial statements than insurance companies do," said Steve Broadie, an assistant vice president with the Property Casualty Insurers of America, Des Plaines, Ill. Insurers also are far more regulated than many other types of companies, he added.

The board of the Life Insurers Council, Atlanta, has decided to examine the issue, which Scott Cipinko, LIC executive director, said is a concern to small companies.

Jan R. Van Gordon, senior executive vice president, secretary and general counsel with Erie Insurance Group, Erie, Pa., explained that an independent auditor who does the financial audits must audit the internal controls. Essentially, he said, three opinions need to be completed: a financial opinion, an assessment that material aspects of those controls are in place, and an attestation that management has fairly stated internal controls.

It is a "monumental undertaking" just to make sure that there are internal document controls, he adds. It can take as much time or more as a full-time audit, he continued.