Proposed NAIC Budget Seeks 3.48% Revenue Hike for 2016 Fiscal Yea
October 13, 2015 by Thomas Harman, Washington Bureau manager, BestWeek: Tom.Harman@ambest.com
WASHINGTON – The National Association of Insurance Commissioners is proposing a 2016 budget including total revenues of $97.6 million and expenses of $102 million, representing increases of 3.48% and 3.98% respectively.
The budget plan stresses efforts to bolster the industry’s cybersecurity infrastructure, implement principle-based reserving for life insurers, and to perform a pilot that would review the functionality of proposed updates to the NAIC’s accreditation program. Written comments are due by Nov. 6 and a public hearing has been tentatively scheduled for Nov. 16.
“The proposed 2016 budget bolsters the NAIC’s world-class data collection capabilities, strengthens our support systems and continues to modernize our state-based regulatory framework,” said John Huff, NAIC president-elect and Missouri insurance director, in a statement. “It is imperative we focus on cybersecurity enhancements by adding talent, products and services to further reinforce the NAIC’s technical and information services infrastructure, security and cyber resilience. This carefully drafted spending plan deploys the resources we need to protect consumers.”
The budget contains funding for nine projects or initiatives that have a revenue expense of at least $25,000.
Chief among these is the second phase of work to address the threat of cybersecurity breaches by enhancing and expanding security infrastructure, which would cost $871,425 in operating expenses and $153,251 in capital expenses. The proposal would have the NAIC hire six full-time staff members and one part-time staff person, as well as fund additional products and services that would bolster NAIC’s technical and information services infrastructure, along with NAIC’s security environment. The budget said the additional staff request is designed to prevent various types of cyber events such as denial of service or exposure of confidential information, as well as quick detection and response to a potential breach in the hope of providing confidence in the NAIC security environment.
The NAIC proposes to spend money on staff and modeling efforts — $467,435 in operating expenses and software and another $10,763 in capital purchases — to aid implementation of principle-based reserving, which the NAIC approved in 2012. The budget document said a significant number of states have adopted the revised model Standard Valuation Law and the NAIC’s principle-based reserving implementation task force believes the manual could become operative on Jan. 1, 2017, after 42 states containing 75% of life insurance premium nationwide have ratified it. The task force has been considering implementation issues, including hiring more actuarial staff at the NAIC to back state principle-based reserving implementation and surveillance activities. “In addition, there is a need to equip NAIC staff with modeling software tools to help ensure appropriate use of models by life insurers and to provide direct support to state insurance departments, when requested,” the budget said.
The NAIC is also seeking $115,240 in operating expenses for fees associated with accreditation consultants and travel costs for consultants and NAIC staff as part of a pilot accreditation review of the NAIC’s Financial Regulation Standards and Accreditation Program. The Financial Regulation Standards and Accreditation Committee is considering changes to the program and is asking for funding to perform the review to determine whether the changes proposed to the 20-year-old program will work.
The NAIC wants $344,768 to hire two credit analysts in its New York-based Securities Valuation Office to help boost its capability to analyze filed securities and to maintain quality analysis. Insurers report securities ownership to the office when those securities can be filed on the NAIC Annual Statement Blank. “Given recent efforts to enhance the quality of reviews and the current credit analyst staffing levels at the SVO, there is an ongoing backlog of securities to be rated,” the budget said.
The NAIC also seeks funding to complete the final phase of an initiative to redesign the State Based Systems technology platform by updating the SBS architecture and tool set in order to provide better performance, more stability and scalability. The multi-phase project began in 2013 and is expected to be completed by the fourth quarter of 2016 at a total cost of $8.1 million. Amortization of the new system will be calculated over its 10-year lifetime. “The cost of the revised deployment plan is a reduction of $502,846 in operating expense currently included in the 2016 budget and a $774,564 increase in capital purchases,” the budget said.
The budget calls for $298,235 for consulting and conference call expenses to evaluate the System for Electronic Rate and Form Filing in order to determine the effort that will be needed to rewrite it. The SERFF is the NAIC’s system that aids submission, review and approval of product filings between regulators and insurance companies. It was last upgraded in 2006 and since has added or modified functionality, including that necessary to support the Interstate Insurance Product Regulation Commission. “This fiscal requests consulting to assist NAIC staff in documenting the current application and identifying areas that require functionality and usability improvements,” the budget said.
