Financial solvency regulation in the insurance industry has experienced monumental changes since the global financial crisis of the late 2000s. Financial requirements and the subsequent examinations companies undergo every three to five years have been subjected to the most significant changes; many of which have come at the direction of the National Association of Insurance Commissioners.

Through some of the industry’s most challenging times, the NAIC has introduced new regulations for insurance companies to comply with and resulted in more work for insurance departments that are often lacking the resources needed to appropriately regulate insurance markets in their state. On top of additional regulations, insurance departments have adopted risk-focused surveillance, which has been incorporated into the examination approach so financial examiners can conduct more efficient financial examinations. These factors are further complicated by the effects of an aging workforce, with the U.S. Bureau of Labor Statistics projecting the insurance industry losing around 400,000 workers through attrition by 2026. With few options for insurance departments to replace those who retire, they are increasingly enlisting the services of third-party vendors in conducting financial examinations and to fill other regulatory needs. This, in part, has led to the continued increase in financial examination costs, increases in some cases of 100 percent or more from one exam to the next. Since COVID-19, financial exams are increasingly virtual experiences. This presents different challenges that companies must be able to handle to successfully manage their financial exams.

As regulators and insurers continue to find their way in this evolving environment, this paper explores the history of financial examinations; the introduction of the risk-focused approached that ushered in the concept of branded risks; cost drivers such as duplication and outsourced regulation; and some potential solutions to curbing ever-increasing exam costs. This paper also shares ideas for how to make an exam a better value proposition for the company being examined.

Resource Details

Publish Date

September 11, 2024

Topics

  • COVID-19
  • Financial & Accounting Issues

Points of Contact
Colleen Scheele
Colleen Scheele
Senior Policy Vice President & Counsel, Financial and Tax Policy