The National Association of Police Organizations is a non-profit group that represents and serves police officers, police unions and local police associations. The National Association of Insurance Commissioners is a non-profit group that represents and serves insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Both are private organizations, although their memberships consist of public employees.
Most Americans have never heard of NAPO, although they are likely more familiar with the Patrolmen’s Benevolent Association and Fraternal Order of Police locals that are among its constituent supporters. Imagine one day that NAPO were to assert that it — and not the FBI or any other public agency — is uniquely entitled to collect, process and sell to the highest bidder all of the arrest reports and other criminal records collected by its members.
There would understandably be significant public backlash. Crime statistics are public records. They are collected by public officials, whose salaries are paid by the public, in the course of upholding the public trust. They should be free and open to everyone, due to the valuable role they play in research and in shaping public policy. But if anyone should profit from their sale, it is the taxpayers themselves, not a private organization.
And yet, that is precisely the status quo when it comes to the NAIC. Like other financial regulators, state insurance commissioners regularly collect data from the companies they regulate: quarterly and annual financial statements, investment schedules, reinsurance exhibits. But states also require regulated insurers to file those statements with the NAIC, which charges steep filings fees for the privilege.
What the NAIC does with the data it collects can mostly be filed under the category of “wholesaler.” It has natural clients in the major rating agencies and in financial data firms like Bloomberg, Thomson Reuters and SNL Financial. But the group also produces its own reports for sale and markets its ability to sell customized data to order, bragging that:
We can search our financial statement data for any schedule/exhibit or we can customize an order right down to any page, column or line. Our database spans 10-years and has 6,000 companies if you need to track any trends in the insurance industry. E-mail firstname.lastname@example.org for a quote today!
As the size of that database would suggest, insurance data is big business for the NAIC. The group’s just-released annual report details how the organization took in $26.9 million in database fees in 2014 and $15.2 million in revenues from the sale of its publications and data products. Together, that represents 44.5 percent of the association’s $94.7 million in 2014 revenues. By comparison, member assessments from the 56 jurisdictions that comprise the NAIC generated only $2.3 million in revenues, or just 2.5 percent.
Apologists for the status quo are apt to note that those revenues are necessary to fund the NAIC’s operations, which include many valuable services to state insurance departments. It is undoubtedly true that the NAIC does, indeed, serve a crucial role in the state-based system of insurance regulation, from its Securities Valuation Office to the National Insurance Producer Registry. But the notion that granting a monopoly to a private organization on the collection and sale of what properly should be public records is the only way to deliver those services just simply has no basis in reality.
As detailed in R Street’s 2014 Insurance Regulation Report Card, U.S. states and territories collected $2.74 billion in regulatory fees and assessments from the insurance industry in 2013, but spent less than half that amount, $1.32 billion, on regulating the industry. If you throw in the $168 million in fines and penalties collected by insurance regulators, $1.15 billion in miscellaneous revenues received by insurance departments and, of course, the whopping $16.39 billion in premium taxes collected by the states, only about 6.4 percent of the more than $20 billion states collected from the insurance industry was actually spent on insurance regulation.
Surely, somewhere in that $20 billion, states could find at least the $15 million that would make up for the loss of data product sales and allow the NAIC to give this stuff away for free.
I’ve long advocated that the data currently controlled by the NAIC could and should be made available by the Treasury Department’s Federal Insurance Office, much as the Securities and Exchange Commission makes public company filings available through their EDGAR service and the Federal Reserve does the same for bank holding company reports through its National Information Center.
FIO was created, according to the statutory language of the Dodd-Frank Act, to “receive and collect data and information on and from the insurance industry and insurers; enter into information-sharing agreements; analyze and disseminate data and information; and issue reports regarding all lines of insurance except health insurance.” The text of Dodd-Frank also specifies that Title 5 Section 552 of the U.S. Code (better known as the Freedom of Information Act) “shall apply to any data or information submitted to the Office by an insurer or an affiliate of an insurer.”
FIO Director Michael McRaith demurely declined to answer when I asked him in a public forum last month whether his office should make this data available to the public for free, but he did agree that members of the public should be able to access information about insurance companies. I would not hold my breath waiting for the office to take a more forceful stance on the issue any time in the near future.
But perhaps not all hope is lost that the NAIC itself might finally see the light. There is precedent. Twenty years ago, the SEC was likewise intransigent about the costs and logistical difficulties involved in making public filings available for free on the Internet. That is, until the Internet Multicasting Service, with a donated computer and a National Science Foundation grant, created the software and user interface that would serve as the basis of Edgar. Within two years, the commission had taken over the project.
Given a sufficient groundswell of interest, let’s hope history can repeat itself.
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