What Is the Insurance Regulatory Information System (IRIS)?

The Insurance Regulatory Information System (IRIS) is a collection of databases and tools used to analyze the financial statements of insurance companies. Managed by the National Association of Insurance Commissioners (NAIC), the Insurance Regulatory Information System (IRIS) has been available since 1972 and is primarily employed by regulators to determine the solvency of insurers.

Key Takeaways

  • The IRIS is a collection of databases and tools used to analyze the financial statements of insurance companies.
  • Managed by NAIC, it is primarily employed by regulators to determine the solvency of insurers.
  • The system automatically produces ratios from the financial statements that insurance companies are required to submit to their regulators.
  • These ratios are then used to establish which insurance companies are in poor financial health and potentially merit closer scrutiny.

How the Insurance Regulatory Information System (IRIS) Works

The Insurance Regulatory Information System (IRIS) mines the financial information filed by insurance companies in order to calculate ratios that can be used to establish which insurance companies risk failing to meet their long-term debts and other financial obligations.

The system automatically produces these ratios from the financial statements that insurance companies are required to submit to their regulators. Once the relevant information has been pulled, reports are generated that list each reviewed insurance company, the financial ratios derived for them, and the ranges that each financial ratio should fall within.

Companies that fall outside of the usual range are brought to the attention of the state insurance departments responsible for regulating them. From there, these regulators may decide to examine the culprits further and, if necessary, place them under close supervision.

According to the NAIC, whose members consist of the head of each state’s insurance department, all insurers are required to file financial statements in the state in which they are licensed to operate. The Insurance Regulatory Information System (IRIS), which was developed by state insurance regulators in conjunction with the NAIC, is then designed to do the rest.

Important

Many state insurance departments make financial data about insurers available to the public. 

Benefits of the Insurance Regulatory Information System (IRIS)

The Insurance Regulatory Information System (IRIS) improves the efficiency of resource-strapped state insurance regulators, functioning as a handy tool that can be used alongside each state’s computerized databases designed to capture, process, and analyze the financial statements of insurance companies.

NAIC stresses that no state is able to thoroughly review the financial condition of licensed insurers immediately upon receipt of the financial statements. Instead, it is down to the Insurance Regulatory Information System (IRIS) to fulfill this role. NAIC claims that the system “helps by providing solvency tools and databases that highlight those insurers that merit the highest priority in the allocation of the regulators’ resources, thus directing those resources to the best possible use."

To some extent, the Insurance Regulatory Information System (IRIS) can also be beneficial to insurers. Rather than waste precious time waiting for the regulator to take action, the company could take the information provided by the system and use it to immediately examine and fix any highlighted financial problems before they spiral out of control.

Special Considerations

Ratios falling outside of the standard range do not necessarily indicate that an insurer is in financial trouble.

Some ratios are based on factors outside of the company’s direct control, such as the performance of the economy or stock market. Since they invest the premiums they obtain from underwriting policies, it is possible for an insurance company to have several ratios outside of the norm.

This ultimately means that regulators are required to do some extra digging to determine if the reports generated by the Insurance Regulatory Information System (IRIS) are a cause for concern. The system itself mainly serves as a guide, highlighting potential issues that may or may not need addressing, while giving the regulators a quick solution to see how companies stack up against each other.