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State insurance departments face a tall order: regulating a trillion-dollar industry for the benefit and protection of consumers. Doing this successfully depends largely on staffing, money and legislative support.
Recently, NerdWallet evaluated 51 insurance department websites on how well they served consumers, but that analysis represents only a small portion of what these agencies do. They regulate insurance, which includes licensing insurance companies and agents; regulating rates and products such as auto, health, homeowners and life insurance; investigating fraud allegations; enforcing insurance laws; and handling consumer complaints and questions.
Depending on the state, these offices may be doing all of this with a budget that works out to only a few dollars per resident.
How much are states spending on insurance regulation per person?
State insurance departments were allotted, on average, $4.20 per resident in 2015, according to data from the National Association of Insurance Commissioners and population estimates from the U.S. Census Bureau. Vermont's per capita budget was more than four times this amount, at $17.92. At the other extreme, Indiana’s per capita insurance budget was $1.35.
How much of state spending goes to insurance regulation?
Looking at how these budgets compare with total state spending provides a different perspective. In 2015, states spent an average of $37 billion. Insurance department budgets represented less than one-tenth of 1 percent (0.07%) of this spending, with the average insurance department budget set at $26.5 million.
Again, Vermont stood out, with its insurance department’s $11.2 million budget representing 0.21% of the state’s $5.4 billion in 2015 expenditures. The Massachusetts Division of Insurance, with a budget of $14.1 million, had the lowest proportion — 0.02% of the state’s $57.3 billion in spending.
Insurance departments make money, but how much do they keep?
Insurance departments bring revenue into their states through licensing fees, taxes and penalties. However, only a small portion of this revenue stays within the department — most goes into a state’s general fund.
Robert Hunter, director of insurance with the Consumer Federation of America and a former Texas insurance commissioner, suggests insurance departments should retain at least 10% of their revenue for regulation. But only 10 states were hitting that mark.
These departments kept, on average, 5.98% of their revenue. That figure got a slight boost (0.14 percentage points) from Michigan’s insurance agency, which retained 84.06% of its revenue in 2015. Seventeen states, including five of the bottom-scoring 10 in NerdWallet’s recent website analysis, kept less than 5% of their revenue that year.
The Tennessee Department of Commerce & Insurance, which kept 1.86% of its revenue in 2015, tied for the second-lowest score in the website analysis. However, department spokesperson Kevin Waters says the agency is “dedicated to our mission of serving Tennesseans,” and that it’s been successful, “responding to over 3,000 complaints on an annual basis and returning an average of $3 million to hardworking Tennesseans.”
How many staff members are dedicated to consumer affairs?
Consumer affairs staff make up only a portion of an insurance department’s employee base, but it’s the portion the public is most likely to have direct contact with.
On average, 12.82% of insurance department workers were in consumer affairs. New Mexico, the state whose website received the lowest score for consumer helpfulness in our recent analysis, had the lowest percentage of such staff in 2015, at 2.36%. Colorado, which ranked third-highest in our website analysis, had 25.95% of its insurance department staff dedicated to consumer affairs.