Insurance Regulation:

The Insurance Regulatory Information System Needs Improvement

GGD-91-20: Published: Nov 21, 1990. Publicly Released: Nov 21, 1990.

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Pursuant to a congressional request, GAO reviewed the effectiveness and reliability of the National Association of Insurance Commissioners' (NAIC) Insurance Regulatory Information System (IRIS) for early detection and warning of financially troubled property and casualty insurers.

GAO found that: (1) state insurance regulators and industry officials had varying opinions about IRIS effectiveness and usefulness; (2) states used IRIS results differently; and (3) state regulators used IRIS as an additional source of information to confirm the status of insurance companies. GAO also found that IRIS deficiencies included: (1) inability to independently verify insurer-prepared financial statements and time lags of up to 15 to 18 months; (2) limited indicators of solvency problems; (3) difficulty in assessing the many different categories of companies; (4) failure to consider some readily available sources of solvency information; and (5) identification of companies that might not require regulatory attention. In addition, GAO noted that lack of access to requested information limited the extent of its analysis.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In 1990, NAIC developed a new computer-based financial analysis system to identify potentially troubled companies that require state action. The Solvency Surveillance Analysis System appears to address the use of additional sources of information on the condition, operations, and management of insurance companies. IRIS continues to be the primary element of the NAIC early warning system.

    Recommendation: NAIC should evaluate, on a test basis, the feasibility, effectiveness, and costs of expanding IRIS to incorporate other information on the condition, operations, and management of insurance companies, with the goal of improving IRIS usefulness.

    Agency Affected: National Association of Insurance Commissioners

  2. Status: Closed - Implemented

    Comments: NAIC believes its actuarial certification requirements, put in place as of December 31, 1990, contain sufficient restrictions to make certain that these loss reserve certifications are independent, even though such certifications may still be done by company employees.

    Recommendation: NAIC should take the lead in working with state regulators, the insurance industry, and professional actuarial organizations to explore options and identify the most appropriate way to obtain annual independent certification of loss reserves.

    Agency Affected: National Association of Insurance Commissioners

 

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