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Regulation and Compliance > State Regulation

As State Deficits Loom, Regulators Tighten Belts

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Insurance departments are responding to the recession by working to hold down spending.

But many departments have their own sources of funding that are separate from general revenue funding, and the impact of a recession will depend partly on the stability of those funding sources, according to representatives for several major state insurance departments.

The 2009 budget of the National Association of Insurance Commissioners, Kansas City, Mo., includes travel subsidies to support each state commissioner’s involvement in NAIC national meetings.

The NAIC will distribute $13,000 in grant funds per state this year, up from $10,000 in 2008, and it will award additional scholarships to state regulators who need help paying to attend NAIC national meetings and educational programs.

The NAIC budget also includes $3,000 per state for members to host state legislators at the NAIC 2009 Fall National Meeting.

The situation at the state level varies from state to state.

Connecticut is expecting to suffer from a $6 billion deficit over the next 2 years.

Connecticut Gov. Jodi Rell has imposed a hiring freeze and a ban on all non-essential travel, according to Connecticut Insurance Commissioner Tom Sullivan.

About 20 states have similar travel restrictions, Sullivan says.

The Connecticut department gets its funding from assessments on insurers domiciled in the state, not from the state’s general fund, but Sullivan says his department is trying to be fiscally prudent, to “set a good example when others are being asked to cut back.”

The number of Connecticut regulators at the NAIC’s 2008 winter meeting fell to 6, down from a peak of 9, Sullivan says.

In New York, which is expecting a $15 billion budget deficit, the insurance department finances its operations by collecting assessments from participants in the insurance industry, according to David Neustadt, a spokesman for the New York department.

The department has not yet had to cut staff, and it has no current plans to lay off employees or shut down programs or offices, Neustadt says.

But “given the current budget situation and how dire it continues to be–we are extremely conscious of spending,” he says.

The department sent a half to a third as many representatives to the winter 2008 NAIC meeting as it sent to prior meetings, Neustadt says.

New York Gov. David Patterson has proposed that unions forego a 3% increase and delay receiving a week’s pay. Some of the insurance department’s employees are union employees, Neustadt says.

Like the Connecticut and New York departments, the California departments uses a separate fund, rather than the state’s general fund, to finance its operations, according to Darrell Ng, a spokesman for the California department.

Policy fees generate the revenue that goes into the department fund, Ng says.

The department is subject to furloughs and salary reductions, Ng reports.

The salary reductions are expected to be 10% of an employee’s salary, depending on the state classification of that employee, Ng says.

Because the department is not funded through the general fund, there is not a moratorium on travel, and employees who need to attend NAIC meetings can still attend the meetings, Ng says.

A spokesman for the Massachusetts department says that the department is funded with industry assessments.

The department has $12 million annual budget and generates $112 million in annual revenue, the spokesman says.

Massachusetts is still asking the department and other agencies to contribute 7% of their budgets to help balance the state budget, but the funding shift will not affect travel to NAIC meetings, the spokesman says.


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