FIVE Key Findings from the 2022 NAIC Insurance Department Resources Report

The end of 2022 saw the release of the NAIC’s 35th annual Insurance Departments Resources Report (IDRR). This report contains key statistics on the resources and regulatory activities of NAIC members including all 50 U.S. states, American Samoa, District of Columbia, Guam, Puerto Rico, the Northern Mariana Islands, and the U.S. Virgin Islands.

Emerging issues like more frequent and severe natural disasters and cyber security threats are constantly adding to the complex and competitive nature of the insurance industry. As new risks unfold, state departments are tasked with monitoring their resident insurance companies and producers to ensure everyone follows the law and behaves in the best interest of consumers. To tackle the regulation of emerging risks head on, state insurance departments have specific resources available to them.

The IDRR is developed through data collected from each department through an extensive survey and is intended to assist state insurance departments in assessing their resources in comparison to other states and managing those resources to best navigate an increasingly dynamic industry. 

The report is divided into two volumes. Volume One contains state information related to each state’s departmental staff, annual budget, revenue, number of producers, and number of consumer complaints and inquiries. Volume Two includes premium volume by type and state. 

In this blog, we’ll be focusing on Volume One only. Continue reading for key findings from each of the 5 sections of Volume One: Staffing, Budgeting and Funding, Examination and Oversight, Insurance Producers, and Consumer Services and Antifraud.

1. Staffing

Insurance is ever-evolving, so it’s not uncommon for the state insurance departments to constantly re-evaluate their staff to best fit their changing needs. However, the IDRR reports little overall change in full-time staffing levels from 2020 to 2021. Of the 56 departments surveyed, 22 reported an increase in staffing while 19 reported a decrease. The remaining departments either didn’t see a change in staffing or didn’t have sufficient data to determine any change. 

It’s worth noting that while there was not much change in full-time staffing levels, the number of contractual staff did decrease by 6.1 percent from 2020 resulting in an 18.2 percent decrease in insurance departments’ contractual staff since 2017. 

According to the report, the states with the largest overall insurance department staff are:

1. California (~1,398 employees)
2. Texas (~1,363 employees)
3. Florida (~762 employees)
4. New York (~703 employees)
5. North Carolina (~489.5 employees)

2. Budget and Funding

Each year, state insurance departments are asked to provide budget information, including their projected numbers for the upcoming fiscal year. This year, the IDRR reported that overall projected budget levels for fiscal year 2023 increased by 9.1 percent from 2022. This represents an increase of 22.7 percent from just four years ago in 2019. In total, all departments of insurance have a combined projected budget of  $1.9 billion. 

Of the 56 departments included, 37 reported an increase in budget from 2022. California still holds the metaphorical crown for largest projected budget with a nearly $550,000 increase over the previous year. Georgia ranks second, a large jump from its 2022 12th place standing, and trails a whopping $69.5 million behind California. Here’s a breakdown of the top 5 U.S. states with the highest and lowest overall projected budgets for 2023:

States with the highest projected budget for 2023:

1. California ($245,487,000)
2. Georgia ($175,999,759)
3. New York ($159,830,000)
4. Texas ($122,522,914)
5. Florida ($81,688,921)

States with the lowest projected budget for 2023:

1. Wyoming ($3,138,938)
2. South Dakota ($3,715,676)
3. North Dakota ($5,262,182)
4. Montana ($5,472,182)
5. Rhode Island ($6,950,000)

The IDRR divides insurance department expenses into two main categories: (1) administration and regulation expenses and (2) operations expenses. Administration and regulation expenses are any costs directly related to the administration of state insurance law and the regulation of insurance companies and producers. Operations expenses include any costs associated with running the department, such as staff salaries. Overall, a majority of states reported higher administration and regulation expenses than operations expenses in the 2021 fiscal year. 

3. Examination and Oversight

State insurance departments are responsible for monitoring both domestic and alien insurance companies as well as non-traditional risk financers such as purchasing groups and risk retention groups. Across the U.S. the number of domestic insurers increased slightly, jumping from 5,929 in 2020 to 5,978 in 2021.

To effectively monitor the solvency and market conduct of each entity, state insurance departments use review tools like financial and market conduct examinations (MCEs). The IDRR reports that the departments completed a total of 1,474 financial and market conduct exams in 2021. Of these, 961 were financial only, 385 were market conduct only, and 128 were combined.

States with the most exams completed:

1. Texas (134 total; 1 financial only, 53 MCE only, 80 combined)
2. California (107 total; 26 financial only, 81 MCE only, 0 combined)
3. Delaware (77 total; 61 financial only, 16 MCE only, 0 combined)
4. New York (73 total; 63 financial only, 8 MCE only, 2 combined)
5. Illinois (67 total; 56 financial only, 11 MCE, 0 combined)

4. Insurance Producers

As part of their market conduct responsibilities, state insurance departments also monitor the activities of their licensed producers. This is done to track and prevent regulatory violations that can result in the department taking action (such as suspending or revoking licenses and imposing monetary fines) against producers. The 2022 IDRR found a total of 12.1 million licensed individuals and entities in 2021. Meanwhile, there were 1,287 total license suspensions, 1,948 license revocations, and 19,521 fines issued the same year. And in case 19,521 fines doesn’t already seem like a lot, it’s worth noting that those fines totaled a monumental $20,810,291. 

5. Consumer services and antifraud

The final section of the report focuses on the services state departments provide to consumers. Along with responding to and resolving customer complaints, the departments also provide information, answer questions, and offer educational resources to insurance consumers. In 2021, state insurance departments received a total of 259,345 official complaints and over 1.5 million inquiries. 

The high cost of regulatory violations

Now that we’ve provided the statistics, what does it all mean? As an insurtech company focused on helping carriers, agencies, and MGAs/MGUs grow while remaining compliant, a few key insurance producer metrics stick out to us. Mainly, it’s hard to ignore the fact that regulatory violations continue to cost individuals and organizations millions of dollars each year. 

Enforcement actions taken against producers such as license suspension, revocation, and fines can have rippling consequences that negatively affect the growth and profitability of your organization. 

Reproduced with the permission of AgentSync

About the author: Holly Monroe is a writer and editor who’s been creating written and multimedia marketing content for various organizations since graduating from Montana State University in 2020. Her work spans multiple industries, but has ultimately led her to a focus in the insurance and insurtech space. 

Holly began working with AgentSync in October 2022 and joined the company as a full-time Content Specialist in February 2023. Her writing seeks to inform readers of the many nuances of insurance while adding a little humour and liveliness to the multifaceted, but sometimes dull, industry.