2.04.2025 SPO Signed Part I Sole Source NAIC membership.pdf

Sole Source Justification Form

Version 7.01 Page 1 of 7

Bulletin Reference Number 25-446DOI-FINAD-B-46467

Requesting Agency/University The Department of Insurance

Sole Source Justification Form - Part I Section I - General Information

Department/Bureau/Section: Insurance/Procurement

Need Identified Date: Jan 9, 2025 Supply/Service Need By Date: Apr 30, 2025

Project Title: NAIC membership due

Vendor: National Association of Insurance Commissioners

Provide a description of the supplies or services required:

With this procurement we are requesting renewal of annual membership.

The membership is for 05/01/2025 - 04/30/2026. IDOI has been a member of NAIC since more than 10 years and we renew our membership every year.

Value: Actual Value of Initial Term, this Change Order or Amendment: 111,338

Will this Sole Source amend a Professional or Artistic Services contract? Yes No

*Sole Source may not be used for amendments for Professional or Artistic Services if the amendment would increase the value by more than 5% of the initial award or extend the term by more than 60 days.

Type: New Sole Source

Section II - Proposed Term

One-Time Purchase Term Contract

Section III - Funding Source Select the type of funding to be used (Check all that apply): State Appropriate Funds Federal Funds Other (Explain):

Section IV - Sole Source Justification

This purchase is economically only available from a single source primarily because it is: (If "Other" explain in one sentence)

Organizational Memberships (Dues, Fees, Conference Charges Including Mandated Travel and Related Expenses)

Are there secondary justification(s) for this sole source? Yes No

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Bulletin Reference Number 25-446DOI-FINAD-B-46467

Requesting Agency/University The Department of Insurance

Section V - Purchase History

Has the Agency or University Purchased these supplies or services in the past? Yes No

Term Term From Term To Value Description Contract Number Type

1 05/01/2019 04/30/2020 87,716 Membership dues P-12026 Small Purchase

2 05/01/2020 04/30/2021 86,309 Membership dues P-16208 Small Purchase

3 05/01/2021 04/30/2022 88,481 Membership dues P-28047 Small Purchase

4 05/01/2022 04/30/2023 89,127 Membership dues P-34155 Small Purchase

5 05/01/2023 04/30/2024 91,067 Membership dues P-61787 Small Purchase

6 05/01/2024 04/30/2025 89,835 Membership dues P-74211 Small Purchase

If more than 10, or if other comments, explain:

Section VI - Business Rationale

1. Provide a detailed explanation of the need for the supplies or services:

Here is the benefit Illinois gets from being a member of NAIC:

- NAIC membership allows our license of domestic companies, including two of the largest national companies – Allstate and State Farm – to be accepted and relied upon by all other states.

- It allows us to accept other state’s licenser and regulation of foreign companies without having to conduct additional examinations of each of those 1000 companies.

- If we were not members of NAIC, companies would not be domestics here and the state would lose the approximately 300,000 jobs in the Illinois insurance industry.

- Right now, we have less than 50 analysts in the Department to regulate the 470 domestic companies we have. If we had to regulate an additional 1000 companies, we would need to increase our headcount threefold with attendant costs to the State and Department.

2. Provide a list and describe in detail the specifications required to satisfy the need:

We have been a member of NAIC for more than 10 year and we renew the membership once a year.

There has not been any new required specification. The specification required are still the same listed below.

- Vendor is required to be able to make our domestic insurance companies' license relied upon and accepted in other state as well.

- Vendor is required to be able to make it easier for our state to use other state insurance companies as well as the foreign insurance companies without conducting additional examinations.

- Vendor is required to be able to complete the license conduct work with few resources and reduced staff.

- Vendor is required to be able to remove the duplication effort, lowering cost of insurer.

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Bulletin Reference Number 25-446DOI-FINAD-B-46467

Requesting Agency/University The Department of Insurance

3. Provide detail explaining the justification selected in Section IV to explain why the requested supplies or services are the only ones available that can satisfy the agency or university requirements?

Neha Shrestha researched online and couldn't find a single vendor who provides all needs of our agency. NAIC is the only vendor who provides everything in one. Here's what NAIC provide us for being a member which is also what our agency is seeking for.

1. Model Laws and Regulations: NAIC develops model laws, regulations, and guidelines that all member states can adopt, ensuring consistency and uniformity across the industry.

2. Multi-state Licensing: NAIC membership allows for mutual recognition of licenses, meaning companies can operate in multiple states without needing to reapply for a license in each state.

3. Coordinated Examinations: NAIC facilitates coordinated examinations across states, allowing states to rely on examinations conducted by other states, reducing redundancy and costs for insurers.

4. Financial Surveillance: NAIC provides financial analysis tools and reports to regulators, helping them assess the financial health of insurers and mitigate potential solvency risks.

5. Consumer Protections: NAIC supports the creation of consumer protection laws, ensuring that insurers meet high standards of financial responsibility and operational transparency.

6. Legal and Regulatory Expertise: Offers access to legal resources, regulatory guidance, and expert analysis to help companies stay compliant with state and federal laws.

7. Training and Education: NAIC provides educational resources for both regulators and industry professionals to stay current on regulatory developments and industry best practices.

8. Regulatory Updates and Alerts: NAIC keeps companies informed about regulatory changes, trends, and federal mandates that may affect the insurance market.

9. Resource Pooling: By coordinating regulatory activities across states, NAIC helps individual states save resources, reducing the need for additional staff and examination resources at the state level.

10. Reducing Redundancy: By accepting mutual recognition of licenses and relying on examinations conducted by other states, NAIC helps reduce duplicative efforts, lowering costs for insurers.

4. What are the unique features of the supplies or services that are not available in any other product or by any other vendor? Provide specific quantifiable factors/qualifications:

The uniqueness of this vendor is that currently, all 50 states, including the District of Columbia and Puerto Rico, are accredited by NAIC.

Without NAIC membership, the system of state insurance regulation maintained by all 50 states would have to be completely overhauled at great expense to taxpayers and with a huge economic loss to the state. This procurement is a sole source. NAIC accredits the DOI as an insurance regulator. The DOI regulates whether companies, domiciled in Illinois or other states, can conduct insurance business in the State of Illinois and issues Certificates of Authority to do so. Illinois regulates approximately 470 domestic insurance companies and has over 1,000 foreign companies operating in our market. NAIC is the only vendor that identifies key financial authorities and responsibilities of state insurance regulators that merit national consistency among the states, which improves oversight of multi-state insurers and ultimately reduces the cost of inefficiencies borne by policyholders. Accreditation standards are only identified after an extensive and transparent process that receives broad support from state commissioners around the country and includes a peer-review component to ensure all state insurance departments continue to strive for best practices and remain world-class regulatory bodies. Currently, all 50 states, the District of Columbia, and Puerto Rico are accredited by NAIC. The Accreditation Program is a key tool in promoting and maintaining state-based regulation of the insurance industry and serves as a key defense against federal intrusion due to inconsistencies among the states. The strength of the Accreditation Program has been cited as a hallmark of the success of the U.S. national system of state-based regulation.

5. Has the Agency or University considered alternative supplies or services to satisfy their need? Yes No

5a. If no, why weren't alternatives evaluated?

There is no alternative vendor/suppliers that could meet the need mention in part 3.

6. Are there resellers or distributors?

Yes No N/A

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Bulletin Reference Number 25-446DOI-FINAD-B-46467

Requesting Agency/University The Department of Insurance

7. What efforts were made to get the best possible price (i.e. did the agency/university negotiate) and how did you determine the price for this purchase is considered fair and reasonable?

In exchange for annual member assessments, the NAIC delivers a wide array of funding, information, products, and services, generally at no charge to insurance regulators as a benefit of NAIC membership. The fee for 2025-2026 is calculated based on premiums written in 2023. The reporting for this was completed in April 2024. Membership fees are based on the total premiums written by companies domiciled in each jurisdiction and include all 56 jurisdictions.

The assessment structure is based on each member’s share of the total insurance premium volume within its jurisdiction. Premium volume is measured as direct written premiums by companies domiciled in each jurisdiction for the calendar year. The budgeted amount is based on four months of the May 2024 - April 2025 assessment and eight months of the May 2025 - April 2026 assessment.

The May 2025 - April 2026 member assessments are illustrated in Exhibit R1-One.The 2025 budget includes an average increase of 20% in the May 2025 - April 2026 fee calculation, including the minimum and maximum fees. The minimum fee will increase from $7,339 to $10,000, and the maximum fee will increase from $125,000 to $150,000. The minimum and maximum numbers do not increase annually. Looking at the Exhibit I provided, you can see that the maximum and minimum fees were unchanged for the previous two billing periods. Fees for a jurisdiction could decrease year over year if the total amount of premiums written by companies domiciled in that jurisdiction decreases, while other jurisdictions see an increase. As you will see in the next response, Illinois’ total premiums written increased from 2022 to 2023, which also contributed to the increase in fees being billed to Illinois. The increase in fees helps offset rising operational costs, significant capital investments in infrastructure, and funds future growth.

The 20% increase applies to the total amount the NAIC receives from all member assessments. See below for calculations showing the 20% increase. As a reminder, some jurisdictions may have seen an increase larger than 20% due to the fact that their percentage of premiums to total premiums increased. In this regard, Illinois premiums accounted for 3.865% of total premiums written in 2022 (affecting the 2024 budget amount) and accounted for 3.9954% of total premiums written in 2023 (affecting the 2025 budget amount).

The base increase of 20%, plus the increase in premiums written for Illinois, caused a larger-than-20% increase in membership fees for Illinois. Again, on average, the increase was 20%. Some jurisdictions had a larger increase, while others had a smaller increase. Currently, there is no cap on the amount of increase in a given year. Please note that the 20% increase for 2025 is the first increase in the base budget in almost 13 years.

2025 Budget Amount = $2,563,991.00 2024 Budget Amount = $2,132,803.00 Increase from 2024 = $431,188.00 % of Increase = 20.2%

8. Will this purchase obligate the State to this vendor for future purchases such as maintenance, licensing or continuing need?

Yes No

8a. If yes, please provide details regarding future obligations and/or needs:

NAIC will train both insurance regulators and industry professionals to stay current on regulatory developments and industry best practices. Our insurance regulator uses Teammate software, and as members of NAIC, we receive nearly 50% off on Teammate software licenses. NAIC also provides us with training for the Teammate software, both in person and online, as deemed flexible.So far, these two are the only purchases that our agency will be obligated to make with this vendor each year.

9. What will be the financial or other impact to the State if this sole source is not approved and a competitive bid is required?

Being a member of the NAIC is crucial for Illinois because it ensures regulatory consistency and smooth licensing for insurance companies operating in the state. Without NAIC membership, Illinois would face fragmented regulations, making it harder for insurers to operate and potentially causing them to leave or reduce their presence. This could lead to significant job losses, estimated at around 300,000 in Illinois' insurance industry, as insurers rely on standardized rules to operate efficiently across state lines. The NAIC framework helps maintain a stable, competitive market, ensuring both industry growth and employment.

Right now, we have fewer than 50 analysts in the Department to regulate the 470 domestic companies we have. If we had to regulate an additional 1,000 companies, we would need to increase our headcount threefold, with attendant costs to the State and Department.

As a current member of NAIC, we do not have to conduct additional research when working with out-of-state or foreign companies.

However, if we were not a member of NAIC, we would have to carry out additional research and examinations, which would require more employees, time, and repetition of work, ultimately increasing costs drastically.

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Bulletin Reference Number 25-446DOI-FINAD-B-46467

Requesting Agency/University The Department of Insurance

10. Is there any additional information you would like to add to justify this sole source?

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Bulletin Reference Number 25-446DOI-FINAD-B-46467

Requesting Agency/University The Department of Insurance

Section VII

Requesting Department Representative

Requesting Department Signature Required

I know and understand the contents of this Sole Source Justification and attest that all statements are true and correct and the fairness and reasonableness of the price was adequately confirmed.

Date 02/04/2025

Printed Name Neha Shrestha E-mail Address neha.shrestha2@illinois.gov

Phone Number 217-720-1513

State Agency Bureau/Division Head or University Purchasing Director Approval and Signature Required

I know and understand the contents of this Sole Source Justification and attest that all statements are true and correct and the fairness and reasonableness of the price was adequately confirmed. (All prior form fields will lock once this e-signature is completed)

E-mail Address michael.underwood@illinois.gov

Phone Number 217-557-5661 Date Feb 4, 2025

Printed Name Michael Underwood

Agency Bureau/Division Head or University Purchasing Director and Not a Designee

SPO Approval and Signature Required

I have reviewed and understand the contents of this Sole Source Justification and agree with the State Agency or University determination.

I have reviewed and understand the contents of this Sole Source Justification and do not agree with the State Agency or University determination. As a result, the State Agency or University must explore other sourcing methods to satisfy their need.

State Purchasing Officer Signature Phone Number 320-519-8036 Date Feb 4, 2025

Printed Name Dereck Reeves E-mail Address dereck.reeves@illinois.gov

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Bulletin Reference Number 25-446DOI-FINAD-B-46467

Requesting Agency/University The Department of Insurance

Sole Source Justification Form - Part II Section I - General Information

Project Title NAIC membership due

Vendor National Association of Insurance Commissioners

Initial Date of Procurement Bulletin Posting

Was a Sole Source hearing held per 30 ILCS 500/20-25?

Yes - Complete Section II and III below (Section II will only be visible when this option is selected)

No - Section II not required, go to Section III below Section III - CPO Approval and Signature Required

Based on my review, I authorize the Agency/University to proceed in accordance with the published Notice referenced above.

Based upon my review, I authorize the Agency/University to proceed with the following Changes.

Based on my review, the Agency/University is not authorized to proceed with this sole source as presented and my recommendation is that it be cancelled.

Other

CPO Signature CPO Phone

Printed Name Date

CPO E-mail

Version 7.01 Page of Sole Source Justification Form - Part I Section I - General Information Will this Sole Source amend a Professional or Artistic Services contract?

If yes, what was the original contract value?

*Sole Source may not be used for amendments for Professional or Artistic Services if the amendment would increase the value by more than 5% of the initial award or extend the term by more than 60 days.

Section II - Proposed Term If a Term Contract, does the term, including renewals, exceed 12 months?

If yes, provide a detailed justification including any economic benefit received for agreeing to a multi-year term:

Section III - Funding Source Select the type of funding to be used (Check all that apply):

Section IV - Sole Source Justification Are there secondary justification(s) for this sole source?

Section V - Purchase History Has the Agency or University Purchased these supplies or services in the past?

Term Term From Term To Value Description Contract Number Type Section VI - Business Rationale

1. Provide a detailed explanation of the need for the supplies or services:

2. Provide a list and describe in detail the specifications required to satisfy the need:

3. Provide detail explaining the justification selected in Section IV to explain why the requested supplies or services are the only ones available that can satisfy the agency or university requirements?

4. What are the unique features of the supplies or services that are not available in any other product or by any other vendor? Provide specific quantifiable factors/qualifications:

5. Has the Agency or University considered alternative supplies or services to satisfy their need?

5a. If yes, name the alternative vendors whose supplies or services were evaluated:

5b. If yes, what were the alternatives for each vendor and why were they unacceptable? Be specific with regard to features, characteristics, requirements, capabilities and compatibility:

5c. Explain how the market evaluation was conducted?

*This evaluation is to determine available options within a market. If the evaluation is to determine quality or best suited option, this is not the appropriate source selection. Under no circumstances shall the evaluation consist of testing alternative options. These activities must be conducted in a competitive transparent environment (i.e. IFB or RFP).

5a. If no, why weren't alternatives evaluated?

6. Are there resellers or distributors?

7. What efforts were made to get the best possible price (i.e. did the agency/university negotiate) and how did you determine the price for this purchase is considered fair and reasonable?

8. Will this purchase obligate the State to this vendor for future purchases such as maintenance, licensing or continuing need?

8a. If yes, please provide details regarding future obligations and/or needs:

9. What will be the financial or other impact to the State if this sole source is not approved and a competitive bid is required?

10. Is there any additional information you would like to add to justify this sole source?

Section VII Requesting Department Signature Required I know and understand the contents of this Sole Source Justification and attest that all statements are true and correct and the fairness and reasonableness of the price was adequately confirmed.

State Agency Bureau/Division Head or University Purchasing Director Approval and Signature Required I know and understand the contents of this Sole Source Justification and attest that all statements are true and correct and the fairness and reasonableness of the price was adequately confirmed. (All prior form fields will lock once this e-signature is completed) SPO Approval and Signature Required Sole Source Justification Form - Part II Section I - General Information Was a Sole Source hearing held per 30 ILCS 500/20-25?

Section II - Sole Source Hearing Details The State posted to the Illinois Procurement Bulletin a description of the State's need, the justification for the sole source decision, and information regarding the opportunity to submit comments and testify at a public hearing. Notice of the hearing was also posted outside of the hearing room 48 hours prior to the hearing.

The public hearing was conducted for the purpose of receiving testimony regarding the sole source determination. The Hearing Officer recommends the following:

The following relevant documents are attached:

Section III - CPO Approval and Signature Required 9.0.0.2.20101008.1.734229

- NAIC membership allows our license of domestic companies, including two of the largest national companies – Allstate and State Farm – to be accepted and relied upon by all other states.

- It allows us to accept other state’s licenser and regulation of foreign companies without having to conduct additional examinations of each of those 1000 companies.

- If we were not members of NAIC, companies would not be domestics here and the state would lose the approximately 300,000 jobs in the Illinois insurance industry.

- Right now, we have less than 50 analysts in the Department to regulate the 470 domestic companies we have. If we had to regulate an additional 1000 companies, we would need to increase our headcount threefold with attendant costs to the State and Department.

Q2Answer: We have been a member of NAIC for more than 10 year and we renew the membership once a year.

There has not been any new required specification. The specification required are still the same listed below.

- Vendor is required to be able to make our domestic insurance companies' license relied upon and accepted in other state as well.

- Vendor is required to be able to make it easier for our state to use other state insurance companies as well as the foreign insurance companies without conducting additional examinations.

- Vendor is required to be able to complete the license conduct work with few resources and reduced staff.

- Vendor is required to be able to remove the duplication effort, lowering cost of insurer.

Q3Answer: Neha Shrestha researched online and couldn't find a single vendor who provides all needs of our agency. NAIC is the only vendor who provides everything in one. Here's what NAIC provide us for being a member which is also what our agency is seeking for.

1. Model Laws and Regulations: NAIC develops model laws, regulations, and guidelines that all member states can adopt, ensuring consistency and uniformity across the industry.

2. Multi-state Licensing: NAIC membership allows for mutual recognition of licenses, meaning companies can operate in multiple states without needing to reapply for a license in each state.

3. Coordinated Examinations: NAIC facilitates coordinated examinations across states, allowing states to rely on examinations conducted by other states, reducing redundancy and costs for insurers.

4. Financial Surveillance: NAIC provides financial analysis tools and reports to regulators, helping them assess the financial health of insurers and mitigate potential solvency risks.

5. Consumer Protections: NAIC supports the creation of consumer protection laws, ensuring that insurers meet high standards of financial responsibility and operational transparency.

6. Legal and Regulatory Expertise: Offers access to legal resources, regulatory guidance, and expert analysis to help companies stay compliant with state and federal laws.

7. Training and Education: NAIC provides educational resources for both regulators and industry professionals to stay current on regulatory developments and industry best practices.

8. Regulatory Updates and Alerts: NAIC keeps companies informed about regulatory changes, trends, and federal mandates that may affect the insurance market.

9. Resource Pooling: By coordinating regulatory activities across states, NAIC helps individual states save resources, reducing the need for additional staff and examination resources at the state level.

10. Reducing Redundancy: By accepting mutual recognition of licenses and relying on examinations conducted by other states, NAIC helps reduce duplicative efforts, lowering costs for insurers.

The assessment structure is based on each member’s share of the total insurance premium volume within its jurisdiction. Premium volume is measured as direct written premiums by companies domiciled in each jurisdiction for the calendar year. The budgeted amount is based on four months of the May 2024 - April 2025 assessment and eight months of the May 2025 - April 2026 assessment. The May 2025 - April 2026 member assessments are illustrated in Exhibit R1-One.The 2025 budget includes an average increase of 20% in the May 2025 - April 2026 fee calculation, including the minimum and maximum fees. The minimum fee will increase from $7,339 to $10,000, and the maximum fee will increase from $125,000 to $150,000. The minimum and maximum numbers do not increase annually. Looking at the Exhibit I provided, you can see that the maximum and minimum fees were unchanged for the previous two billing periods. Fees for a jurisdiction could decrease year over year if the total amount of premiums written by companies domiciled in that jurisdiction decreases, while other jurisdictions see an increase. As you will see in the next response, Illinois’ total premiums written increased from 2022 to 2023, which also contributed to the increase in fees being billed to Illinois. The increase in fees helps offset rising operational costs, significant capital investments in infrastructure, and funds future growth.

The 20% increase applies to the total amount the NAIC receives from all member assessments. See below for calculations showing the 20% increase. As a reminder, some jurisdictions may have seen an increase larger than 20% due to the fact that their percentage of premiums to total premiums increased. In this regard, Illinois premiums accounted for 3.865% of total premiums written in 2022 (affecting the 2024 budget amount) and accounted for 3.9954% of total premiums written in 2023 (affecting the 2025 budget amount). The base increase of 20%, plus the increase in premiums written for Illinois, caused a larger-than-20% increase in membership fees for Illinois. Again, on average, the increase was 20%. Some jurisdictions had a larger increase, while others had a smaller increase. Currently, there is no cap on the amount of increase in a given year. Please note that the 20% increase for 2025 is the first increase in the base budget in almost 13 years.

2025 Budget Amount = $2,563,991.00 2024 Budget Amount = $2,132,803.00 Increase from 2024 = $431,188.00 % of Increase = 20.2%

Right now, we have fewer than 50 analysts in the Department to regulate the 470 domestic companies we have. If we had to regulate an additional 1,000 companies, we would need to increase our headcount threefold, with attendant costs to the State and Department.

As a current member of NAIC, we do not have to conduct additional research when working with out-of-state or foreign companies. However, if we were not a member of NAIC, we would have to carry out additional research and examinations, which would require more employees, time, and repetition of work, ultimately increasing costs drastically.