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Article

State Regulatory Corner: Destination Phase 2

Authored by: Philip G. Talerico

As examiners, we know planning is a major part of a risk-focused exam that sometimes feels never-ending. Getting started in Phase 1: Understand the Company and Identify Key Functional Activities to be Reviewed and Phase 2: Identify and Assess Inherent Risks in Activities seems to be an uphill battle. In Phase 3: Identify and Evaluate Risk Mitigation Strategies, it all seems a bit easier, as if the examination has reached the downhill slope. So, how does one get going up this planning hill quickly, with the least amount of time wasted?

At Baker Tilly, we continuously seek ways to expedite the exam process. Here are some suggestions to get to that first major exam milestone, Phase 2.

Front load with document gathering

Exhibit A

Exhibit A of the National Association of Insurance Commissioners (NAIC) Financial Condition Examiners Handbook (FCEH or Handbook) has a checklist to help get started. Exhibit A is sectioned into Pre-planning and Phase 1 procedures. There can be a lot of dead time between Pre-planning and Phase 1, so one should consider customizing this exhibit to individual needs. For example, look at moving some of the information gathering of documents from the Phase 1 section into the Pre-planning section for more consistent timing and activity. Someone on your examination team will be ready to utilize these workpapers before everyone else, so waiting time (dead time) can be reduced. Some examples of documents that may already be available include:

  • CPA Workpapers
  • Prior Exam Report and Management Letter
  • Prior Exam Workpapers
  • Annual Statements, Management Discussion & Analysis and Other ISITE Reports
  • If the lead state: The Company’s Own Risk Solvency Assessment (ORSA) Filing or the Financial Analyst’s review of the ORSA
  • Corporate Governance Annual Disclosure (CGAD)
  • Financial Analyst’s Insurer Profile Summary or Risk Assessment Worksheet

Exhibit B – Exam Planning Questionnaire

Another benefit from having some of the above items gathered early is the ability to better customize Exhibit B to send to the company for the initial information request, as you will know more about the company and can avoid asking questions that do not apply. You may also learn of additional documents that you want to request now, saving time later. Here, one can map and align the Exhibit B information directly to the various Teammate procedures. By conducting an initial mapping exercise, we can quickly identify what we can complete before even starting the examination and what additional requests we may be needed.

Planned Use of Information Gathered

Mapping Exhibit B in order to understand where the information is to be used is step one in being efficient. Step two includes having a plan to effectively leverage the documentation that the examination team has gathered; specifically, Financial Analyst documents prepared and received early in the process can be utilized to completely address certain examination procedures designed to provide the Examiners with an Understanding of the Company. For example, Phase 1 – Part 1 – Analytical Review and any risks identified as a result are incorporated explicitly within the Analyst prepared Insurer Profile Summary.

Signaling the team

When performing an examination in TeamMate, you may have noticed that it is comparable to a big filing cabinet, as tools for project management and team communication are not the primary focus. Effective, timely communication and shared access to important documents can go a long way to speeding up the exam progress. If working remotely, effective communication and information sharing becomes even more critical.

There are several products organizations can use to keep teams informed and moving forward, including Microsoft Teams. Features like teams, channels, planner, and chat are all ways to keep the exam teams up to date. Channels can be created for each different examination in progress, while the chat feature allows team members to communicate about exam topics or ask other questions. The planner feature can be used to show status of Phases 1 through 7 and other examination milestones. Tasks can be added for each procedure or administrative task, while individual assignments, deadlines, procedure descriptions, comments, and files can also be added.

It can be helpful to break workflow into two- or three-week sprint cycles to ensure progress. Sprints can be created through Microsoft Planner to guide the examination team in achieving the short-term objectives of the examination. The creation of these sprints list all the activities that the examination team collectively determines should be complete within the two-week window. Individual members of the examination team have autonomy to assign tasks to themselves and work through that task until complete. A sprint allows an examination team to apply a narrow focus on current exam activities; with an Examiner-in-Charge or Examination Manager responsible for bigger picture status and preparing for future sprints.

If you do not have access to Microsoft Teams, Microsoft Outlook and SharePoint can be used to set up a similar project management system utilizing the One Note add-in.

Leaving a successful audit trail

A successful audit trail leaves a clear understanding for someone reviewing the examiner’s work. This is important for all phases of the exam, but especially in Planning because it takes up the bulk of the exam time. Remember the audience that will be following you: the Examiner-In-Charge (EIC), Supervising Examiner, NAIC Accreditation Team, etc. All the elements defined below are essential in gaining an understanding of work performed.

  • Purpose: Why are we reviewing this? What is the procedure that we are documenting here?
  • Source: Where did we obtain the evidence on the working paper? Who provided the information? Where is the evidence and how can we obtain access to it again?
  • Work performed: What did you do to complete the procedure? Which evidence did you look at? What page of the document was it located on
  • Conclusion: What are the answers to the questions posed in the purpose? Were the procedure steps all completely satisfied? What did you do with any issues found?

A reviewer should not have to make logical leaps and assumptions to get through the procedure. If you have answered all the questions above, you will (most likely) not have to come back down this trail.

Getting back on track

We’ve all been there: you send out an information request, and then wait until you receive a response with your requested items. You’re stuck on a particular procedure and are waiting for help. You’re procrastinating on a procedure that you do not enjoy. You’re distracted by other tasks and lose focus. You’re just plain unsure of how to get going again. Here are some ideas for getting back on track:

  • Instant message a question to the EIC or a fellow analyst/examiner
  • Utilize the planning tools established to see what procedures are still needed to be complete
  • Look up the topic in the NAIC Financial Condition Examiner’s Handbook
  • Review a completed exam for ideas on wording or a clue of what to do next
  • Review the many procedures in Planning and State Compliance for which you already have the information. Pick some easy ones to accomplish and sign off!
  • Conquer that stuck feeling like Mark Twain: “If it’s your job to eat a frog, it’s best to do it first thing in the morning. And if it’s your job to eat two frogs, eat the biggest one first.”
  • Think of just one more task you can accomplish today. It may lead to another!

Conclusion

Hopefully this article has provided some insight to assist your next (or current) exam team in concluding on Phase 2 efficiently to get to the downhill slope. Each of the ideas presented above will need to be specifically tailored to the examination and the team conducting the examination to achieve optimal efficiency.

Connect with our Value Architects™ today to learn more about exam teams.

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