NAIC $41M Surplus, Spending Challenged By Insurance Groups

"In fact, our membership is uncomfortable about the surplus possibly being not high enough," Mr. Kelley added.

But the trade groups do not appear to be convinced.

The Washington, D.C.-based American Insurance Association in a statement recommended an annual 10 percent subsidy from NAICs surplus to its general fund until the surplus is brought down to approximately $20 million.

"The NAIC is a tax-exempt, not-for-profit organization, which now expects its surplus to exceed $41 million by the end of 2004," noted AIA senior counsel Phillip Carson. "Unless NAIC is expecting a dramatic reduction in revenue, there is no reason for the build-up of such a large surplus."

Mr. Carson suggested that "if, in fact, a substantial drop-off in revenues is expected, there ought to be frank and open discussions about this expectation and the timeframe over which the reduction is to occur."

NAICs Mr. Kelley said that future revenues are constantly being studied and no reduction is expected in the near future. He also pointed out that the need for the challenged budget items have been well documented and explained to the insurer trade groups.

The budget "does not include sufficient information on the operation of the NAIC to permit a full understanding and evaluation of existing and new programs," said William D. Boyd, financial regulation manager of the Indianapolis, Ind.-based National Association of Mutual Insurance Companies.

For instance, a joint statement issued by NAII and NAMIC decried the lack of information on "employee head count" in the budget. "Salary information can only be effectively evaluated when it is accompanied by a specific head count by department," the statement noted.

According to Mr. Kelley, the head count issue was a misunderstanding that was quickly resolved. "We did not provide that information sooner because we didnt know thats what they [the trade groups] wanted to see," he said.

Among the cost-cutting measures proposed by AIA are moving all NAIC meetings to Kansas City, Mo., where NAIC is headquartered. That change would eliminate the need for most NAIC staff travel, according to AIA.

"The central location and the lower cost of living and doing business in Kansas City would reduce the financial burden of those industry participants who would need to travel to Kansas City for the meetings," Mr. Carson stated.

"At the very minimum, the NAIC should at least consider reducing the number of meetings and streamlining the meeting agendas by eliminating items that can be effectively addressed through conference calls," added Mr. Carson.

"The NAIC has talked about this for some time," Mr. Kelley responded. "An NAIC task force considers venues for the meetings. It would not necessarily be less costly to have all the meetings in Kansas City. They [the task force] are looking at a variety of centralized locations that may save on costs."

NAICs technology initiatives were also questioned. "Use of technology is no doubt a key component in improving state regulation, making it more efficient," noted NAIIs Mr. 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."

Mr. Kelley disagreed with NAIIs comments. "Within our budget package, the technology initiatives were well documented. In December 2002, the NAIC formed an information resources management committee that reviews technology-related costs and initiatives," Mr. Kelley said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 14, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.