Insurance Regulatory Information System (IRIS) Explained
The Insurance Regulatory Information System (IRIS) is a system containing databases and tools to analyze the financial statements of different insurance companies. It is primarily used by the National Association of Insurance Commissioners (NAIC) to determine the credibility of insurance companies.
A Little More on the Insurance Regulatory Information System
The IRIS was built in 1972 and is managed by National Association of Insurance Commissioners (NAIC).
The IRIS system is used for data mining of the financial information filed by insurance companies to calculate factors which are then used to determine the insurance company’s current financial status (including which companies are facing financial issues). The system helps regulators to identify which companies are within acceptable limits of the defined ratios and which companies require attention. IRIS determines a range of ratio values that are considered acceptable, with outlying values indicating that an insurer should be examined more closely.
The ratios calculated by IRIS are used to generate reports that categorize an insurance companies financial ratios and the ranges in which they fall. The companies that appear to be out of ranges are then attended by the regulators to review the issues if needed.
Some ratios may be outside ranges due to factors beyond the company’s control, such as overall economic conditions of the market or country. IRIS also help the regulators to rank the companies against each other.
The system makes the state insurance regulator’s job easier by providing of additional information beyond the state’s own databases, which are primarily designed to capture, process and analyze the financial statements of insurance companies in their state.
NAIC notes that “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. IRIS helps by providing solvency tools and databases that highlight those insurers that merit the highest priority in the allocation of the state insurance regulator’s resources, thus directing those resources to the best possible use.”