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NAIC Releases 398-Page Budget in Which 'Transparency is Key'

INDIANAPOLIS (Oct. 6, 2004)--The National Association of Insurance Commissioners (NAIC) says that its proposed 2005 budget reduces expenses 2.8 percent from 2004 budget levels and offers users transparency in understanding NAIC objectives.

Revenues for the regulatory association, however, are budgeted for a 2.1 percent increase over budget levels for 2004, new NAIC President Diane Koken said in a release that accompanied Tuesday evening's release of the 398-page budget document.

Cathy Weatherford, who is executive vice-president and CEO of the NAIC, said of the budget document, "Transparency is key to our budget financial reporting processes, and we believe this budget offers more disclosure than any non-profit budget you will find."

Her statement on "transparency," echoed by Koken, has particular significance now, when Congress is considering legislation that would elevate the NAIC's role in insurance regulation. The proposed federal legislation, the State Modernization and Regulatory Transparency Act (S.M.A.R.T. Act) would invest the NAIC with quasi-regulatory authority. Setting aside widely held constitutional reservations about this proposed structure, there is concern that the NAIC is not well suited to accommodate the broad public interaction associated with rulemaking. A truly transparent budget process might prove a good first step towards meeting these fundamental expectations.

National Association of Mutual Insurance Companies (NAMIC) Financial Regulation Manager, William Boyd, said of the 398-page document, "The NAIC has provided more detail than in previous years in submitting this projected $58.8 million budget, and we need to look at such proposed increases as the additional $1,112,288 allocated for wages and salaries, which reflects an increase of about 4.5 percent in comparison to the current year's budget. We'll make our own evaluation of those priorities manifest in the budget and make comment to the NAIC accordingly."

The NAIC's budget was issued later this year than normal, and the delay is understood to be related to the election in September of new NAIC leadership, replacing that headed by Ernst Csiszar, former South Carolina insurance commissioner who resigned his state and NAIC posts to head an insurance trade association. The additional time allowed the leadership to have input to the budget.

The new budget would generate an increase in the NAIC's operating reserve by the end of 2005 to 83.8 percent of operating expenses. The reserve has been an item of contention between the NAIC and the industry for some time. In responding to industry criticism the NAIC has said that industry trade associations often have significantly higher such ratios.

Koken, elected NAIC president in September, said in general of the proposed 2005 budget, "We have been able to effectuate significant expense reductions from the prior year by reducing the costs or reallocating human and budget resources from less essential to more essential projects and services."

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For further information contact:
Robert Detlefsen at rdetlefsen@namic.org
or (317) 875-5250