NAIC Proposed 2017 Budget Emphasizes Tech Initiatives, Seeks 4.4% Revenue Increase
WASHINGTON //BestWire// - The National Association of Insurance Commissioners is proposing a 2017 budget focused on technology improvements, which seeks total revenues of $101.9 million and expenses of $102.1 million, an increase of 4.4% and a decrease of 0.4% respectively from the 2016 budget.
Written comments on the budget are due Nov. 17 and a public hearing will be held in December, according to the NAIC.
The proposed budget reflects the NAIC’s support of technology solutions and the continuing modernization of insurance regulation in areas such as the evolution of principle-based reserving, according to the group.
Ted Nickel, NAIC president-elect and Wisconsin insurance commissioner, said the NAIC has invested in technology initiatives such as cybersecurity to provide services to state insurance regulators, consumers and insurance industry users. “In 2017, the NAIC will finish implementing a number of enhancements born out of these recent investments,” Nickel said in a statement. “This budget prudently manages expenses while providing reasonable funding to continue to organization’s support of state regulators in their goal to protect consumers and ensure a solvent insurance industry.”
Salaries, taxes, and benefits account for 60.7% of total operating expenses. The 2017 salary budget is only $373,000 higher than the 2016 budget at $48.4 million, primarily due to modest salary increases in 2017 and the reduction of chief executive officer compensation. The proposed 2% merit salary increase is lower than budgeted in 2016, according to the budget.
Travel expense is on par with the 2016 budget at $5.4 million but is slightly higher than the 2016 projection, reflecting increasing travel costs.
The proposed 2017 budget has six items that result in revenue, expense or capital impact of at least $25,000.
Among these is the second phase of a regulatory data collection effort, which seeks $137,700 in operating expenses and $74,000 in capital to create a business and technology framework. The first initiative for which the framework will be used is principle-based reserving, the budget said. The Valuation Manual for principle-based reserving requires a statistical agent to collect detailed experience from insurers regarding a mortality study and for future studies involving expenses and lapse studies. “This initiative enables the NAIC to quickly respond to regulatory data collection needs, thereby improving state-based regulation and ensuring the data is collected in a consistent manner that allows easy transfer from state to state,” the budget said.
The NAIC passed principle-based reserving for state consideration in 2012 and as of July 1, 46 states comprising 85.7% of the market passed changes to the NAIC Valuation Manual — enough to make principle-based reserving operational nationwide. A three-year phase-in period begins Jan. 1 (Best’s News Service, June 16, 2016).
Also, the NAIC is looking to fund a second phase of expanded integration services for its System for Electronic Rate and Form Filing. This will allow industry customers to retrieve additional data and attachments from the SERFF and to send SERFF updates. “This initiative will improve speed to market for insurance products as the automation provided will reduce errors, eliminate duplicate data entry and help insurers get timely products into the hands of insurance consumers,” the budget proposal said. No operating expenses or capital will be sought for this effort, because technical work will be done by internal staff. Beginning in late 2017, the NAIC will charge a license fee to industry users. Revenue for 2017 is expected to be small, generation of revenue is expected to increase to $133,400 by 2019, the budget said.
The NAIC seeks $228,400 for an online content management system to improve its Internet website and those of its affiliates by implementing processes and procedures to streamline creation, approval, security and content deployment, as well as improve navigation, accessibility and usability of content, the budget said. Funding will be used for hardware, consulting, staff training and travel. Traffic on the NAIC and affiliates websites has jumped from 40,000 in 2006 to 2 million in 2016.
The NAIC seeks $34,500 in capital for a server and $195,800 in net expense for consulting, training, and depreciation costs to conduct the second phase of its Infrastructure Technology Infrastructure Library adoption. The effort is designed to enhance existing technology using a new tool to improve change and incident management processes. Central tracking of changes in NAIC technology environment should benefit cybersecurity efforts, the budget said. The NAIC’s affiliate, the National Insurance Producer Registry, will use this service in its operations and for doing so will provide one-third of the initiative’s funding.
Also, the NAIC seeks $157,500 in consulting and $180,000 needed to buy an off-the-shelf job scheduler tool that will help the NAIC speed deployment of internally developed system. This tool will improve availability, reliability, and performance of NAIC applications and promote greater uniformity across systems, the budget said. “In addition, usage of the tool will enable NAIC to be more proactive in uncovering potential system outages/issues before new applications are deployed and provide for a more rapid response to system outages/issues occurring in a production environment.”
Finally, the NAIC proposes to simplify its database structure, reducing fee disparity while retaining the cap structure for individual companies and groups. The recalibration is expected to result in more equitable funding of investments in NAIC initiatives, systems and technology infrastructure, which should benefit state insurance regulators, consumers and the insurance industry. “While the recalibration results in increased revenue of $1,658,428, it will also result in 70% of filers experiencing no change or a reduction in fees paid compared to the current structure,” the budget said.
(By Thomas Harman, Washington Bureau manager, BestWeek: Tom.Harman@ambest.com)