Insurers Raise Concerns About Excessive Growth of the NAIC Surplus

October 24, 2003

Two major property/casualty trade associations have
expressed serious concerns about a large surplus in the National Association of Insurance Commissioners’ (NAIC) proposed 2004 budget.

For the three-year period ending in Dec., 2004, the NAIC proposes to collect $10 million in excess of its expenses. Although a significant part of that surplus will be allocated to ongoing projects, the trade associations say the excess is representative of the NAIC seeking more revenue than it needs from insurers and others.

The National Association of Independent Insurers (NAII) and the National Association of Mutual Insurance Companies (NAMIC) protested the trend in written comments this week on the NAIC’s draft 2004 budget. The NAIC will hold a hearing on Nov. 3.

“We acknowledge the need for some degree of cushion, yet we do not expect all the contingencies enumerated in the budget to occur. At a time when most companies and state governments are tightening their belts, a surplus of this magnitude must be questioned,” said Stephen Broadie, NAII assistant vice president, financial legislation and regulation. “Our letter suggested that the NAIC should explain why this level of surplus is appropriate.”

“Although the associations generally agree with remarks by NAIC staff that called the 2004 budget package one of the most inclusive and transparent budgets that the NAIC has ever published, we feel that the budget still falls somewhat short in some areas. It does not include sufficient information on the operation of the NAIC to permit a full understanding and evaluation of existing and new programs with respect to their maintenance or fulfillment of projects and priorities set by the NAIC,” said William Boyd, NAMIC’s financial regulation manager. The letter sent to the NAIC also questioned the omission of information about employee headcount in the budget. “Salary information can only be effectively evaluated when it is accompanied by a specific head count by department, as well as an explanation about who in the department does what, how it relates to the NAIC mission and how performance is measured.”

The insurance trade groups also looked at the NAIC’s technology-driven initiatives to improve regulation and asked how these are being monitored.

The letter pointed out that the Market Analysis Program and Market
information Systems provide support for over 14 major computer applications and databases.

“Use of technology is no doubt a key component in improving state
regulation, making it more efficient,” continued Broadie, “However, all
technology-based programs at the NAIC should undergo continuous cost benefit analysis to determine if the benefits they create outweigh the costs they create.”

An additional concern included data base fee payment issues.

“It seems rather inequitable that members of the associations pay data-base fees to file an annual statements and then the NAIC asks them pay again if they request information from the same database,” said Boyd.

Another issue raised in the letter asked about the declining attendance at the four NAIC national meetings.

Comments to the NAIC suggested that the increase in closed meetings could have had an impact on the reduction in attendance.

“All of our observations and suggestions are offered constructively and with the intent to further an efficiency that we believe needs to be present in conducting the business of the NAIC,” the letter said.

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