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Back to basics: the NAIC prepares a 'realistic, conservative and frugal' 2010 budget.


Is this a time of austerity for the National Association of Insurance Commissioners?

As the NAIC prepares its 2010 budget, organization officials are vowing to take aggressive steps to rein in spending. The NAIC is used to hearing complaints from the insurance industry that it is spending too much. But NAIC officials say the current economic climate gives them no choice but to cut back where possible.

"There isn't a stone unturned. There isn't a sacred anything," said NAIC President and New Hampshire Insurance Commissioner Roger Sevigny.

With aspects of the 2010 draft budget still to be determined, NAIC Chief Operations Officer Andrew Beal said many details are not yet available. But he said the association has begun to slice into its current 2009 budget of $73.1 million in anticipation of "a little bit of a shortfall."

Among the moves: no salary increases for the second half of 2009 or the first half of 2010; no funding of new positions; and unspecified cuts to the much-criticized travel budget. No layoffs or mandatory furloughs are currently being considered, Beal said.

In short, the NAIC is looking to trim its budget before it is forced to cut.

"The NAIC is not immune from the economic conditions of the marketplace," Beal said.

Sevigny promised a 2010 budget that is "realistic, conservative and frugal." The budget will be introduced at the NAIC's fall national meeting near Washington, D.C., Sept. 21-24.

The current budget anticipated $73.1 million in revenues, a 7.1% increase; and a 74.4 liquid reserve ratio, up from 67.6 for the end of 2008. The increasing size of the NAIC's surplus has been a contentious point with some insurers; they say they are unfairly charged to build it up.

The travel budget, which rose 22.7% in the current budget, is a perennial source of friction between the NAIC and critics in the industry. The 2009 budget raised the amount of grant funds to send staff to NAIC meetings and events, including $476,462 for international travel and $300,000 for commissioners' travel.

Meetings and educational programs are vital to conducting NAIC business and remaining current on industry developments, and much-maligned foreign travel also is vital in an increasingly international industry environment, Sevigny said. "What's very expensive is international travel. It's also very important," he said.

The 2009 budget included $540,900 for salary, benefits and start-up expenses to establish a full-time International Liaison Director's position in Brussels, Belgium. The liaison would work with the International Insurance Relations Leadership Group and the International Association of Insurance Supervisors, an organization representing insurance regulators in 190 global jurisdictions.

Financial considerations led the NAIC not to fill the post this year and to reallocate those funds toward shifting its executive offices to Washington, D.C., and building up its staff levels there, Beal said.

In 2010, the NAIC will cut its number of national meetings from four to three. But that shift is not expected to result In significant budget savings, since meetings are both an expense- and a revenue-generator, Sevigny said.

A spirit of frugality would be welcomed by the industry, but insurers want to see greater transparency in the budget-making process. The NAIC should consult the industry before the budget is introduced, said Neil Alldredge, vice president and state regulatory affairs manager for the National Association of Mutual Insurance Cos.

"It appears that any and all new programs are included without regard to the fiscal impact on the fee providers: the industry. Ultimately, the costs of regulation, In this case costs imposed by a nonaccountable trade association, are born by insurance consumers," he said.

"Until the organization becomes more transparent, it's difficult to know even what questions to ask," said Eli Lehrer, director of the Competitive Enterprise Institute's Center for Risk, Regulation and Markets.

In the 2009 budget, service programs, including the System for Electronic Rate and Form Filings, account for $14.3 million, an 8.24% hike over 2008. The 11-year-old SERFF enables companies in all lines of business to send--and states to receive, comment on and approve or reject--mandated insurance rate and form filings. Nineteen states have adopted the SERFF uniform system.

In practice, Lehrer said, SERFF is an unfair tax on insurance companies, enforced by states. "They are using monopoly power to extract money from companies that fund everything they do anyway," he said.

Noting that the industry has representatives on the SERFF board of directors, Deirdre Manna, vice president of industry, regulatory and political affairs for the Property Casualty Insurers Association of America questioned the share of SERFF funds that go to fund general NAIC staff and services.

The NAIC's Beal said, "We're trying to be reasonable In our approaches, but we've got a business to run here, too."

A potential "X" factor that has industry observers concerned is the NAIC's pursuit of creating its own rating agency. A working group is investigating whether and how to expand the existing New York City-based Securities Valuation a full-fledged Nationally Statistical Rating Organization under the auspices of the U.S. Securities and Exchange Commission.

The matter was greeted with skepticism at the summer meeting of the National Conference of Insurance Legislators. NCOIL Vice President and North Dakota Rep. George Keiser said, "I cannot for the life of me understand how you are going to underwrite this venture."

"Many of us share the same concerns," Sevigny replied.

The matter remains "very much in the early stages," NAIC Vice President and Iowa Insurance Commissioner Susan Voss said.




* The Issue: The National Association of Insurance Commissioners' 2009 budget of $73.1 million will not achieve its revenue goals.

* The News: NAIC officials have begun cutting spending to blunt the impact of the shortfall.

* The Next Step: The 2010 budget will be introduced at the NAIC's fall national meeting near Washington, D.C., Sept. 21-24.

By the Numbers: NAIC 2009 Budget

$73.1 million: total revenue

$18 million: sales of publications and insurance data products

2.9%: part of revenue from state assessments

35.13%: part of revenue paid by insurers for database fees

$70.7 million: total expenses

32.8%: increase paid for professional services (e.g., outside legal counsel and public relations)

22.7%: increase in travel budget

Source: NAIC
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Article Details
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Title Annotation:Regulatory/Law: NAIC Budget; National Association of Insurance Commissioners
Comment:Back to basics: the NAIC prepares a 'realistic, conservative and frugal' 2010 budget.(Regulatory/Law: NAIC Budget)(National Association of Insurance Commissioners)
Author:Carr, Sean R.
Publication:Best's Review
Geographic Code:1USA
Date:Sep 1, 2009
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