Familiar refrain: as the NAIC considers its 2007 budget, insurance industry concerns of years past echo once more.Key Points * The NAIC NAIC See National Association of Investors Corporation (NAIC). 2007 proposed budget includes surplus of $56.2 million, nearing the total revenue of $63.4 million. * Some fear the focus on revenue generation diminishes the NAIC's mission to serve the public interest. * The NAIC argues that the strength of its bottom line benefits consumers as well as insurers. As dependable as the call to the hounds and falling leaves this time of year, so, too, is the alarm that's raised by insurance industry advocates over the annual budget of the National Association of Insurance Commissioners The National Association of Insurance Commissioners (NAIC) is an Internal Revenue Code Section 501(c)(3) non-profit organization which seeks to organize the regulatory and supervisory efforts of the various state insurance commissioners from around the United States. . With concerns ranging from the organization's expanding database services to a budget surplus that has grown to nearly equal the total annual budget, each year the industry's refrain seems to be the same. Consider Jack Ramirez' admonition Any formal verbal statement made during a trial by a judge to advise and caution the jury on their duty as jurors, on the admissibility or nonadmissibility of evidence, or on the purpose for which any evidence admitted may be considered by them. in 1996, when he was president of what was then the National Association of Independent Insurers. Speaking of a three-year crusade by State Farm Group and Farmers Insurance Group to protest increases in the NAIC's database fees, Ramirez Ramirez may refer to:
"The only conclusion that can be drawn from recent events ... is that the future course of the NAIC with respect to its budget, spending, accountability and the database fees is still unclear," he said. Fast forward to the NAIC's 2007 proposed budget, now being vetted by the industry, and see how the song remains the same. "A place to hide a tree is in a forest. A place to hide a book is in a library. The place to hide a number, or the lack of a number, is in a lot of numbers," said Michael Michael, archangel Michael (mī`kəl) [Heb.,=who is like God?], archangel prominent in Christian, Jewish, and Muslim traditions. In the Bible and early Jewish literature, Michael is one of the angels of God's presence. Lovendusky, associate general counsel for the American Council of Life Insurers The American Council of Life Insurers (ACLI) is a Washington-based lobbying and trade group for the life insurance industry. ACLI represents 373 insurance companies that account for 93 percent of the U.S. life insurance industry's total assets. . "For all of the NAIC's transparency (1) The quality of being able to see through a material. The terms transparency and translucency are often used synonymously; however, transparent would technically mean "seeing through clear glass," while translucent would mean "seeing through frosted glass." See alpha blending. to its budget process, it's it's 1. Contraction of it is. 2. Contraction of it has. See Usage Note at its. it's it is or it has it's be ~have remarkable how difficult it is to find meaningful facts, say, about database fees, or how much surplus is sloshing around over there." Of all the line items that make up the NAIC's budget, "other income," database fees and surplus garner the most attention. Lines of Growth Accounting for the largest percentage (40%) of revenues in the proposed 2007 budget are database fees, which since 1995 have increased from $17.34 million to $24.47 million, a 2.9% compounded annual growth rate. This includes the state producer licensing database, which grew from 1,500 to 2.2 million records between 1998 and 2005, increasing the NAIC's collection and disbursement DISBURSEMENT. Literally, to take money out of a purse. Figuratively, to pay out money; to expend money; and sometimes it signifies to advance money. 2. of licensing fees on behalf of states to $101 million a year. And while not the largest item of revenue, "other income" has seen a greater increase than any other. This item has recorded a 25.76% compounded annual growth rate--from $413,836 in 1995 to a projected $6.48 million in 2007. Populating the category are administrative service fees; rental payments from the NAIC's National Insurance Producer Registry The configuration database in all 32-bit versions of Windows that contains settings for the hardware and software in the PC it is installed in. The Registry is made up of the SYSTEM.DAT and USER.DAT files. Many settings previously stored in the WIN.INI and SYSTEM. ; and charges to vendors with telecommunication telecommunication Communication between parties at a distance from one another. Modern telecommunication systems—capable of transmitting telephone, fax, data, radio, or television signals—can transmit large volumes of information over long distances. links to certain states via the NAIC's Frame Relay A high-speed packet switching protocol used in wide area networks (WANs). Providing a granular service of up to DS3 speed (45 Mbps), it has become popular for LAN to LAN connections across remote distances, and services are offered by most major carriers. . Meanwhile, surplus, labeled as unrestricted net assets Net assets The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand. net assets See owners' equity. , grew from $21.77 million in 1995 to a projected $56.2 million in the 2007 proposed budget. That's a 158% total increase and a 8.2% compounded annual growth rate. The 2007 amount is enough to fund any state insurance department budget for one year, save for California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). , New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of and Florida Florida, state, United States Florida (flôr`ĭdə, flŏr`–), state in the extreme SE United States. A long, low peninsula between the Atlantic Ocean (E) and the Gulf of Mexico (W), Florida is bordered by Georgia and . Expenses have seen similar growth. At $36.1 million, salaries and benefits account for 64% of the proposed 2007 budget. Included within that amount is $22.9 million in salaries alone, up from $12.8 million in 1995, a 7.17% compounded annual growth rate. Catherine J. Weatherford, the NAIC's executive vice president and chief executive officer, cautioned those who criticize crit·i·cize v. crit·i·cized, crit·i·ciz·ing, crit·i·ciz·es v.tr. 1. To find fault with: criticized the decision as unrealistic. See Usage Note at critique. the NAIC's surplus to first consider that many of the very trade organizations doing the criticizing are themselves holding upward of more than; above. See also: Upward 150% in reserves. She makes it clear as well that the NAIC's reserving goal is not arbitrary. "We spent six months working with a consultant and with our members in dealing with our short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. and long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. risks, because that's what reserves are based on: risk," Weatherford said. "They gave us a target of 80% liquidity. We look at that and think what would happen if there were another 9/11, when we lost our own offices in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. and had to completely rebuild. And Hurricane Katrina  Editing of this page by unregistered or newly registered users is currently disabled due to vandalism. taught us that we needed funds immediately to be able to support
those states impacted in the Gulf region."But the industry's concerns have had less to do with the growth than with its impetus Impetus is a stimulus or impulse, a moving force that sparks momentum. Impetus may also refer to:
Nonprofit A corporation or an association that conducts business for the benefit of the general public without shareholders and without a profit motive. Nonprofits are also called not-for-profit corporations. Nonprofit corporations are created according to state law. vs. Profit According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the Internal Revenue Service, the NAIC was approved for 501(c)(3) tax-exempt status in 1999. Records show it filed a Form 990 for tax year 1999 indicating zero on all income lines. Subsequent submissions of Form 990--the "Return of Organization Exempt From Income Tax" form, which discloses financial information about an organization--weren't necessary, as the organization was granted a waiver The voluntary surrender of a known right; conduct supporting an inference that a particular right has been relinquished. The term waiver is used in many legal contexts. as a government affiliate under IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. Revenue Procedure 95-48, an IRS spokeswoman said. "It's a growing concern that dominates; that the NAIC is not operating as a nonprofit trade association ... it's increasingly looking like a software data business," Lovendusky said. "There's no need for that type of organization to have $56 million sitting around of our members' money." Not so, said Weatherford. All the items on the balance sheet and the functions within are there because of demand, she said. "The NAIC budget reflects the regulators' commitment to improvements in state regulation," Weatherford said, "the improvements that the industry said that they demand, that they need, that they have to have to be able to continue to support state regulation. You can't speak out of both sides of your mouth and demand that there is reformation Reformation, religious revolution that took place in Western Europe in the 16th cent. It arose from objections to doctrines and practices in the medieval church (see Roman Catholic Church) and ultimately led to the freedom of dissent (see Protestantism). and improvements and efficiency, and then bang on bang on - (Or "pound on"). To stress-test a piece of hardware or software: "I banged on the new version of the simulator all day yesterday and it didn't crash once. I guess it is ready for release." these same people because they are committing financial support to the initiatives that the consumer community and that the regulated community demands." In some cases, it's the pattern of spending that has irked insurers, said Bill Boyd Bill Boyd is:
The 2007 budget, for example, seems to exemplify ex·em·pli·fy tr.v. ex·em·pli·fied, ex·em·pli·fy·ing, ex·em·pli·fies 1. a. To illustrate by example: exemplify an argument. b. a shift back to large increases, he said. "I would observe that significant increases have commenced again. There was a more or less subdued sub·due tr.v. sub·dued, sub·du·ing, sub·dues 1. To conquer and subjugate; vanquish. See Synonyms at defeat. 2. To quiet or bring under control by physical force or persuasion; make tractable. 3. period in terms of year-to-year increases. That appears to be ending now," Boyd said. "Continued increases of this measure will provoke pro·voke tr.v. pro·voked, pro·vok·ing, pro·vokes 1. To incite to anger or resentment. 2. To stir to action or feeling. 3. To give rise to; evoke: provoke laughter. the industry into revolt REVOLT, crim. law. The act of congress of April 30, 1790, s. 8, 1 Story's L. U. S. 84, punishes with death any seaman who shall lay violent hands upon his commander, thereby to hinder or prevent his fighting in defence of his ship, or goods committed to his trust, or shall make a revolt ." And while Boyd argues that NAIC fees, along with state fees and such activities as market-conduct examinations, serve to drain the industry's pocketbook--a cost that gets passed on to the policyholder--not all fault the NAIC for its innovative method of survival. Consumer advocate Birny Birnbaum, executive director of the Center for Economic Justice, said it's central to the NAIC's independence to have a cache that doesn't depend upon the insurance industry. "In the NAIC's defense, it's important to generate revenue so that they're not dependent on database fees," Birnbaum said. "Otherwise, the industry could threaten to withhold with·hold v. with·held , with·hold·ing, with·holds v.tr. 1. To keep in check; restrain. 2. To refrain from giving, granting, or permitting. See Synonyms at keep. 3. database fees and put the NAIC out of business." On the other hand, Birnbaum said, the NAIC shouldn't make the act of generating revenue its primary goal. Other budget items being eyed by the industry include revenue increases, such as those for "Education," which have increased from $711,523 in 1998 to a projected $1 million in the 2007 proposed budget, and "Meetings," which has seen revenue grow from $1.74 million in 1998 to a projected $2.78 million in 2007. In contrast, Birnbaum complains, some non-revenue-generating budget lines appear to be getting short shrift short shrift n. 1. Summary, careless treatment; scant attention: These annoying memos will get short shrift from the boss. 2. Quick work. 3. a. , such as "Market Regulation," which at a projected cost of $866,386 in 2007, is the leanest item listed in the general fund budget by division. "When you think about all of their efforts in going before Congress to defend state regulation by touting touting the making of personal representations by a veterinarian to persons who are not clients in an attempt to solicit their business. consumer protection, then you look at where they actually spend their money, you fend fend v. fend·ed, fend·ing, fends v.tr. 1. To ward off. Often used with off: fend off an attack. 2. Archaic To defend. v. they spend their money on selling data and lobbying the federal government," Birnbaum said. "The smallest amount of money they spend is on market regulation. And that's the thing they say is the reason for state (versus federal) insurance regulation." [GRAPHIC OMITTED] National Association of Insurance Commissioners' Revenues and Expenses 1998-2007 Account 1998 1999 2000 Revenues $43,644,716 $44,028,315 $47,440,639 Expenses $40,087,117 $42,091,930 $44,535,930 Revenues Account 1998 1999 2000 State Assessments $1,485,485 $1,544,528 $1,601,316 Database Fees/contributions 19,705,175 19,967,504 19,998,446 Publications, data sales 10,507,989 12,806,543 12,774,894 Service Income 5,578,067 4,643,330 6,951,886 Meetings 1,746,757 1,858,252 1,696,973 Interest 3,192,921 1,331,534 1,476,037 Education 711,153 1,015,560 1,546,377 Other Income 717,169 861,064 1,394,710 Total Revenue $43,644,716 $44,028,315 $47,440,639 Expenses Account 1998 1999 2000 Salaries $15,772,356 $16,905,183 $17,966,709 Temporary Personnel 626,690 781,284 616,200 Payroll Taxes 1,205,643 1,249,784 1,292,446 Benefits 2,866,163 3,402,178 3,564,243 Employee Development 441,009 386,997 424,496 Professional Services 2,390,693 2,257,080 2,074,671 Computer Services 2,067,287 1,965,296 1,904,631 Travel 1,368,263 1,361,088 1,660,305 Examiner/Analyst Team 144,052 172,506 107,770 Occupancy 2,882,370 3,267,597 3,577,660 Equipt./Software Rental and 1,839,420 1,999,590 2,079,956 Maintenance Depreciation 1,993,081 1,797,185 1,951,208 Insurance 179,009 194,990 186,862 Telephone 370,074 346,479 339,304 Supplies 572,167 504,500 554,296 Postage 339,516 322,030 272,100 Library 167,062 274,089 352,906 Printing 1,365,314 1,233,547 1,624,032 Meetings 823,981 833,088 1,038,896 Education Programs 359,431 447,302 609,942 Communications and Training 319,419 382,147 343,516 Other Expenses 1,994,117 2,007,990 1,993,781 Total Expenses $40,087,117 $42,091,930 $44,535,930 Account 2001 2002 Revenues $46,298,216 $49,917,012 Expenses $43,806,331 $46,648,360 Revenues Account 2001 2002 State Assessments $1,656,994 $1,746,789 Database Fees/contributions 20,358,959 22,981,041 Publications, data sales 12,538,079 12,485,430 Service Income 7,038,676 6,538,952 Meetings 1,357,315 188,141 Interest 298,193 2,151,986 Education 974,921 840,793 Other Income 2,075,079 2,983,880 Total Revenue $46,298,216 $49,917,012 Expenses Account 2001 2002 Salaries $19,954,890 $21,832,708 Temporary Personnel 544,984 538,688 Payroll Taxes 1,428,509 1,578,667 Benefits 3,395,825 4,653,612 Employee Development 475,801 661,724 Professional Services 1,773,797 3,172,571 Computer Services 2,133,899 1,877,576 Travel 1,179,964 1,428,178 Examiner/Analyst Team 88,204 78,461 Occupancy 3,567,114 3,640,298 Equipt./Software Rental and 2,166,219 1,867,927 Maintenance Depreciation 2,277,672 3,837,606 Insurance 214,015 326,701 Telephone 372,500 433,598 Supplies 526,417 566,015 Postage 124,746 214,216 Library 332,043 420,340 Printing 1,094,075 1,107,430 Meetings 721,096 818,132 Education Programs 357,174 416,119 Communications and Training 395,795 515,319 Other Expenses 681,592 -3,337,526 Total Expenses $43,806,331 $46,648,360 Account 2003 2004 Revenues $58,234,435 $61,390,511 Expenses $54,104,909 $55,232,946 Revenues Account 2003 2004 State Assessments $1,815,610 $1,868,656 Database Fees/contributions 24,366,126 24,914,375 Publications, data sales 13,460,855 15,239,660 Service Income 8,576,114 8,647,330 Meetings 1,869,100 1,727,426 Interest 3,474,937 2,275,550 Education 798,451 785,700 Other Income 3,873,242 5,931,814 Total Revenue $58,234,435 $61,390,511 Expenses Account 2003 2004 Salaries $22,941,038 $24,199,651 Benefits 7,460,664 7,662,064 Rental and Maintenance 5,657,807 6,308,431 Professional Services 5,658,172 5,681,146 Depreciation 3,699,072 3,603,346 Travel & Transportation 1,769,835 1,909,957 Office Services 1,618,496 1,610,807 Printing 1,806,052 1,205,718 Education and Training 949,203 1,086,563 Meetings 978,536 964,410 Temporary Personnel 425,553 532,951 Insurance & Taxes 394,748 394,411 Other 159,748 197,397 Bad Debt Expense 585,985 -123,906 Total Expenses $54,104,909 $55,232,946 Account 2005 2006 2007 * Revenues $59,231,565 $59,339,189 $63,380,432 Expenses $56,315,622 $58,995,281 $62,674,841 Revenues Account 2005 2006 2007 * State Assessments $1,910,113 $1,968,635 $2,015,609 Database Fees/contributions 25,609,165 24,239,191 24,470,912 Publications, data sales 14,244,226 14,484,775 14,488,796 Service Income 9,285,127 9,604,552 10,734,358 Meetings 1,984,000 2,094,901 2,780,791 Interest 792,717 1,019,950 1,397,162 Education 773,750 916,270 1,013,990 Other Income 4,632,467 5,010,915 6,478,814 Total Revenue $59,231,565 $59,339,189 $63,380,432 Expenses Account 2005 2006 2007 * Salaries $26,025,428 $27,358,932 $29,422,286 Benefits 7,662,360 8,017,355 8,285,576 Rental and Maintenance 6,401,780 7,055,368 7,118,947 Professional Services 5,360,354 4,723,581 4,610,196 Depreciation 3,666,293 3,976,638 4,286,219 Travel & Transportation 2,012,845 2,535,633 2,338,903 Office Services 1,464,884 1,386,224 1,556,656 Printing 190,878 190,232 226,698 Education and Training 1,222,434 1,362,214 1,483,043 Meetings 902,357 898,944 1,768,224 Temporary Personnel 472,743 531,488 551,667 Insurance & Taxes 355,190 434,774 452,045 Other 228,076 248,898 254,381 Bad Debt Expense 350,000 275,000 320,000 Total Expenses $56,315,622 $58,995,281 $62,674,841 * Projected Source: National Association of Insurance Commissioners NAIC Budget Surplus 1998-2007 Surplus grew from $21.8 million in 1995 to a projected $56.2 million in 2007. That's a 158% total increase and a 8.2% compounded annual growth rate. ($ Millions) 1988 10.50 1990 13.60 1995 21.77 2000 35.50 2001 34.92 2002 36.98 2003 41.82 2004 50.18 2005 54.35 2006 55.49 2007 * 56.20 * Projected Source: NAIC Note: Table made from line graph. |
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