NAMIC's study also found that mutual insolvency costs were 27 percent of total insolvency costs from 1977 to 1991, and since 1991 have represented only 5 percent of the industry total.

Doug Stolte, deputy insurance commissioner with the Virginia Bureau of Insurance and chair of the NAIC/ American Institute of Certified Public Accountants (AICPA) working group, said that losses often extend beyond the $300,000 limit paid out by property-casualty guarantee funds and the $100,000 paid out by life guaranty funds. The harm that can be done to life policyholders and to creditors can be in excess of those totals and is a "major hole" in the study.

Mr. Stolte also said that regulators have invited insurers to come up with an alternative proposal to insure strong internal audit controls and that they "are not wedded to SOX [Sarbanes-Oxley]." Regulators are concerned with a system of controls that cover the major processes and not necessarily all processes as covered by Title IV of SOX, he explained.

He said of the announcement of the study, "It is a big frustration that there is an obvious attempt to kill [changes to MAR.] It is an obvious attempt to frustrate discussion on the topic."

Regulators need tools to look into internal management controls of insurers, according to Mr. Stolte. For instance, he said that in Virginia they are getting ready to question American International Group, New York, regarding allegations the company categorized workers' compensation premiums as a liability in order to avoid the payment of tax.

Of those who are opposing implementation of internal controls, he says, "I don't know what they have to fear. Give us a proposal."

And, according to Mr. Stolte, it is hard to analyze costs when a structure for assessing internal controls has not been decided upon yet. He suggested that a dialogue and framework should be decided upon before looking at costs.

"I don't see why they wouldn't want the best available governance. It is not like we are living in an age where there are no problems," said Brendan Bridgeland, an NAIC-funded consumer representative with the Center for Insurance Research, Boston.

"If it can happen at AIG, it can happen at smaller companies. It might be more important for smaller companies to have [internal controls]."

Mr. Bridgeland said that while he can understand concern about expense and difficulty in complying with potential new requirements, if smaller companies experience problems they may be less able to handle them than a company the size of AIG.

Companies should counterbalance costs by looking at the potential for savings if a company is saved from rehabilitation and guarantee fund assessments are not levied, he added.

"Regulators are really on the ball to be looking at this," Mr. Bridgeland said.

But during a discussion of the study, NAMIC representatives disagreed with the idea the companies will ultimately benefit.

"The pending proposal is unnecessary, ill-advised and too expensive," said Chuck Chamness, NAMIC president.

The NAMIC study found that the cost is almost eight times the estimated benefit level to mutual insurers. And, the study found, although estimated second-year cost reductions range from 41 percent for larger companies, they are only 14 percent for smaller companies.

Since the survey was completed, one participating company has come back and said that the cost is actually greater than it initially estimated, said Roger Schmelzer, NAMIC senior vice president-regulatory affairs.