To reach that standard, a state's insurance department budget must be equal to at least 10 percent of the state tax revenues collected from insurance premiums paid by residents. The national average for the percentage of premium tax revenue spent on state regulation is 7.7 percent, up from 5.4 percent in 1988, according to the CFA study. However, some states remain woefully underfunded to handle voluminous customer inquiries and complaints, and perform market conduct examinations, says J. Robert Hunter, the study's author.

The NAIC put a different spin on the study, viewing it as a testament as to how far some insurance departments have come in terms of increased budget revenues and staffing. NAIC President George Nichols III says he welcomes the scrutiny involved in this kind of survey, although he "might debate" Hunter's method of grading the states.

"Overall, the goal of funding insurance departments at 10 percent of premium is simply a benchmark," Nichols says. "Each state must take into account specific differences in the cost of regulation, directly related to the size of their insurance market, population, and number of domiciled carriers."

The study's findings come amid allegations of racial discrimination and misleading sales practices by some of the nation's top insurers. In a recent case, 28 companies that operate in Georgia and Florida have been ordered to stop collecting higher premiums from black policyholders based on their race. Georgia is singled out in the CFA survey as one state that has "failed to maintain sufficient resources to protect consumers."

The study reveals Georgia's insurance department staff — including attorneys, actuaries, and market conduct examiners — dropped from 188 in 1993 to 167 in 1998. (Insure.com has learned that the number of total Georgia insurance department staff has fallen even lower, to 127, this year.) In addition, the survey reveals Georgia's number of market conduct exams completed in 1988 was eight compared with 114 in 1998, a 93 percent decline.

"I agree, we are underbudgeted," says Georgia Insurance Commissioner John Oxendine. "It's kind of a disgrace. We're one of the fastest growing states in the union and, in the last six years I've asked for increases, my department's budget has shrunk each year."

Not all commissioners saw their budgets decrease between 1988 and 1998. Alabama, California, Connecticut, Washington, D.C., Kentucky, Missouri, Nebraska, Oregon, and Pennsylvania actually doubled the ratio of their departmental budgets related to premium tax revenue, the survey showed. However, some of these states, including Connecticut and Alabama, started at such low ratios in 1988 that the increases over the decade did not considerably raise them in the overall rankings.

Kentucky, home to NAIC President George Nichols III, is one state in which dramatic increases occurred in the insurance department budget. Kentucky went from a budget of less than 3.5 percent relative to premium tax collections in 1988, to 9.43 percent in 1998, nearly reaching the 10 percent benchmark set by CIIG and raising its ranking from an "F" to a "B." During this time, Kentucky also doubled its insurance department staff.

Larger budgets enable insurance departments to hire more staff to handle consumer inquiries and conduct market exams, according to insurance industry insiders and consumer watchdog groups. But big budgets don't necessarily translate into aggressive insurance company regulation. Hunter has noted a degree of coziness between many state regulators and the insurance industry, with nearly half of state insurance commissioners coming from or returning to the insurance industry they oversee.

According to Hunter, "achieving the will to do what is needed to protect consumers" and securing adequate funding are the crucial goals for the NAIC and the states as they rethink regulation for the future.

Big budgets also do not mean well-funded and aggressive insurance departments are always quick to catch insurance company abuses. For example, Hunter notes that cases of alleged racial discrimination should have been caught by commissioners much sooner in states where they occurred and points to small supervisory budgets as likely to have played a key role in the delay. However, many of these race-based premiums were being collected in Florida, which has one of the nation's best-funded insurance departments. For at least a decade, Florida has had resources of over 12 percent of premium taxes.

No matter what their budgets may be, there's no doubt insurance commissioners are invested with the legal authority to enforce regulation, says Brendan Bridgeland, director of the Center for Insurance Research, a nonprofit public advocacy group based in Cambridge, Mass. But effective regulation really depends on who has the reins of each department, he adds.

"Commissioners are either elected or appointed and, either way, it's political," Bridgeland says. He adds that unless there's a public outcry — such as the ones accompanying the Quackenbush scandal or the race-based premiums class-action lawsuits — many regulatory issues remain "under the radar screen."

California Insurance Commissioner Chuck Quackenbush resigned on June 28 after being accused of using millions of dollars from insurance settlements to further his political career.