What Is an Insurance Regulatory Information System?

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

Understanding an Insurance Regulatory Information System (IRIS)

The Insurance Regulatory Information System mines the financial information filed by insurance companies in order to calculate ratios that can be used to determine which insurance companies face solvency issues. IRIS determines a range of ratio values that are considered acceptable, with outlying values indicating that an insurer should be examined more closely.

State Insurance Regulators

The system improves the efficiency of state insurance regulators by providing another set of resources that can be used alongside each state’s computerized databases designed to capture, process, and analyze the financial statements of insurance companies. The IRIS system was developed by state insurance regulators in conjunction with the NAIC and is a valuable resource for funding and resource-strapped regulators.

The IRIS system automatically generates financial ratios based upon the financial statements that insurance companies are required to submit to insurance regulators. Reports generated from these ratios list each reviewed insurance company, the financial ratios derived for each company, and the ranges that each financial ratio should fall within. Companies that fall outside of the usual range are brought to the attention of regulators.

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 an insurance company’s direct control, such as the performance of the economy or stock market. Since insurers invest the premiums they obtain from underwriting policies, it is possible for an insurance company to have several ratios outside of the norm. IRIS reports serve as a guide in that they let regulators know-how companies stack up against each other.

"All insurers are required to file financial statements with all of the states in which they are licensed to operate. No state is able to thoroughly review the financial condition of all licensed insurers immediately upon receipt of the financial statements," notes the NAIC. "IRIS helps by providing solvency tools and databases that highlight those insurers that merit the highest priority in the allocation of the state insurance regulators’ resources, thus directing those resources to the best possible use."

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