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Making Insurer Financial Statements Available Over the
Internet | ||||
Commissioner Diane
Koken Commissioner John Morrison Re: Annual Statements on the Internet Dear Members of the Committee: We urge you to adopt the recommendations of the Blanks Task Force (June 2004) and the Consumer Protections Working Group (September 2004) by making complete annual statements available to the public on the Consumer Information Source (“CIS”). After hearing from numerous consumer advocates and other interested parties, both the Task Force and the Working Group concluded that full and complete annual statement filings should be made freely available on CIS:
For the reasons stated below, we fully endorse the recommendations of the Blanks Task Force and the Consumer Protections Working Group and urge the Executive Committee to adopt these determinations. Background As described by professor emeritus Joseph Belth in his publication the Insurance Forum, in 2002 the NAIC began to encourage state insurance departments to end hard copy filing requirements in order to reduce the amount of burdensome paper filings. See The NAIC Terminates Free Public Access to the Annual Statements of Insurance Companies, the Insurance Forum (October 2003). Professor Belth noted that many states believed they could switch to the paperless filing system because the NAIC would make electronic copies of the annuals statements freely available to the public through the internet. However, the failure of the NAIC to make the full annual statement filings available to the public has now made it difficult for the state insurance departments to end their reliance on hardcopy filings. As the Hardcopy Filings Ad Hoc Subgroup noted, the majority of states that have continued to require paper filings cite their public records needs as their primary reason for requiring the paper filings.2 The elimination of hardcopy filings is a sensible and efficient goal. In today’s world, the use of electronic documents is common and can reduce excessive paper and printing costs for consumers, regulators and insurers. It is a measure that relieves the burden on state insurance departments because it greatly reduces staff time related to managing the hard-copy filings and the need for extensive copying in response to freedom of information act requests. By not putting the full annual statements on the internet, however, the NAIC has remained well behind the times. Forcing citizens to travel to their state capitals in order to review annual statement filings might have been the only option in the 19th century, but is inappropriate in this day and age. Yet if the NAIC requires consumers (many of whom may be elderly or live in rural jurisdictions) to travel to their state insurance departments in order to view annual statements on special computer terminals that are not available elsewhere, this archaic system will be perpetuated. Annual Statements are Public Documents and Should be made Available by the NAIC Most simply, NAIC does not own public documents that are created by individual insurers in order to meet their statutory burdens in the jurisdictions where they operate. We fully recognize that products developed independently by the NAIC are the property of the NAIC and should not be made available to the general public free of charge. However, to the extent the NAIC collects annual statements in PDF format on behalf of the state insurance departments, the unmodified public documents it receives should be made freely available to all members of the public. When the decision was made by the Internal Administration Subcommittee to start charging members of the public for the PDF annual statements, data harvesting by commercial entities was cited as a concern. See June 23, 2003 Minutes of the Blanks Task Force.3 To date, no analysis of how data might be harvested from the PDF files has been provided. Nor is it clear why the existence of commercial entities, who are fully entitled to utilize state public records laws or to visit their local insurance departments to review and copy annual statements like any other members of the public, should result in the NAIC barring access to the unmodified public documents for consumers, reporters and every other type of potential user. At the June 14, 2004 Meeting of the Consumer Protection Working Group, NAIC staff member Andrew Beal stated that “some states do make this distinction [between commercial and non-commercial use] and that this is one of the reasons the CIS should not be used by states to fulfill freedom of information requests.” However, if the full annual statements are made available on the CIS, there will be no need for freedom of information act requests in the first place. Indeed, that is the chief advantage of providing the annual statements on the NAIC website – members of the public will no longer have to burden the state insurance departments with freedom of information act (“FOIA”) requests. While it is true that each state has different standards governing their response to FOIA requests (including the allotted time for responses and copying costs),4 these administrative burdens and costs are irrelevant if the on-line availability of the annual statements negates the need for FOIA requests in the first place. This would further reduce the administrative burdens imposed on the state insurance departments. Rather than relying on the CIS as a tool to respond to FOIA requests, the state insurance departments will benefit from the publication of the statements on the NAIC’s website through a reduction of time-consuming and burdensome inquiries. Minor Revenue Considerations Should not Prevent the Release of Public Records The final justification for withholding the full annual statements from the CIS is the NAIC’s concern that making these public documents freely available will adversely impact the revenues of the NAIC.5 However, any member of the public can request copies of annual statements from the individual state insurance departments as well as the NAIC. Indeed, a consumer could make a FOIA request for electronic copies of the annual statements on a disk or a cd-rom, greatly reducing the production or copying costs normally imposed on FOIA requests. Given this simple reality in an increasingly electronic society, the NAIC will not remain the sole source of PDF annual statements and there is no guarantee these revenues would be maintained. As discussed in the deliberations of the Consumer Protection Working Group, the revenues impact on the NAIC is minimal, particularly in light of the organization’s $50 million budget.6 Moreover, we believe that the value of making these public documents more accessible to consumers and the public outweighs the potential revenue losses to the NAIC. Any revenue lost by the NAIC can be offset through other means, as the cost-savings to the state insurance departments and consumers reaped by eliminating the need for hard-copy filings and FOIA requests will more than justify these costs. Conclusion Finally, making the annuals statements freely available on the CIS website will fulfill and important public policy objective and bring the NAIC and state insurance departments more in-line with other regulatory agencies. Not every consumer will want access to the detailed information provided by the annual statements, but these documents serve as a critical resource for those who do seek access to this level of detail, as well as consumer advocates and members of the media. The importance of full access to public documents cannot be overstated. The recognition that “sunshine is the best disinfectant” has led the Securities and Exchange Commission (among other regulators) to make all SEC filings available on the internet free of charge: Along this line, many federal agencies provide free access to filings made by regulated entities. For example, financial filings with the Securities and Exchange Commissioner (SEC) under the EDGAR system are freely accessible to the public at www.sec.gov/edgar.shtml. (July 10, 2003 Letter from NAIC Blanks Task Force to the Revenue Considerations Working Group)7 Therefore, we urge you to make the full annual statements (and all the supporting documents identified by the Blanks Task Force) freely available to the public on the CIS website.
Footnotes 1. The full recommendations of the Hard Copy Filings Ad Hoc Subgroup to the Blanks Working Group can be found in a letter dated May 10, 2004 (“Subgroup Recommendations”). In particular, the Subgroup concluded that the NAIC should:
2. “The majority of states contacted report the primary concern to be their ability to efficiently provide access to statement information to the public…. Since states are currently required to provide the information to anyone requesting it, it does not seem that the existing barriers to access are justified.” Subgroup Recommendations (May 10, 2004). 3. “Mr. McGuckin requested proof of how external entities could perform data harvesting, a reason cited in the memo for eliminating the free PDF from CIS.” 4. “Andy Beal (NAIC) responded that states have different freedom of information request requirements in terms of timelines for production, costs of production, and use of records. Because of this, Mr. Beal said the CIS is not the appropriate means by which states should satisfy freedom of information requests.” March 15, 2004 Meeting of the Consumer Protection Working Group. 5. “In addition, Mr. Beal said the CIS was developed for consumer use and not for commercial use and that the NAIC does have concerns about how the availability of all PDF financial files may adversely impact revenue. Mr.Beal said the concern is that an adverse revenue impact could adversely impact the ability of the NAIC to provide services to its members in order to benefit consumers.” March 15, 2004 Meeting of Consumer Protections Working Group. 6. According to one partial assessment, NAIC sales of hard copy data declined by $90,000 in 2002 (as compared to 2001) after incomplete versions of the Annual Statements were posted on CIS. 7. In its July 10, 2003 letter the Blanks Task Force also observed that “[t]he states must continue to provide public information without questioning its use” and questioned how the NAIC could potentially make copyright claims on “the PDF files when these are individually submitted records without added analysis by NAIC staff.” |