How Is a “Loss Pick” Derived? (An Actuary’s Perspective) 

The term “loss pick” is used very loosely in the insurance industry and is not well defined. The expert actuaries at Perr&Knight are here to clarify the definition and provide more insight into how loss picks are derived. 

Over the years, our actuarial consulting experts have narrowed down the definition of a loss pick to this: the projected ultimate loss ratio for the upcoming policy period, i.e. the future period where an insurance program of interest will begin to place new business on the capacity provider’s admitted / non-admitted insurance company paper.  

This definition could also include defense and cost containment expenses (“DCCE”) and / or adjusting and other expenses (“AOE”), which are the newer names for allocated loss adjustment expenses (“ALAE”) and unallocated loss adjustment expenses (“ULAE”). However, more often than not, a loss pick usually refers only to the loss ratio without any loss adjustment expenses (“LAE”). 

Historical Program Data 

The most common way to derive a loss pick is to utilize the historical premiums, losses, and claims of the underlying insurance exposures to develop a projected loss ratio using standard actuarial techniques. That is, developing the losses to ultimate, trending them to the prospective policy period and dividing them by earned premium at the current rate level (adjusted for any historical rate changes, changes in underwriting, claims handling, prospective exposures, etc.).  

However, too often this data is not available, so alternatives are required to calculate an appropriate loss pick. 

Industry Data 

In some situations, industry data can be used as premiums, losses and underwriting expense information is publicly available in Statutory Page 14 and/or the Insurance Expense Exhibit (“IEE”) for many lines of business for each admitted / non-admitted insurance carrier. This data can be helpful to better understand which carriers are profitable, especially if the company’s line of business of interest falls under one of the specific lines broken out on these statements.  

Granted, this data has some flaws, as any information is generally not program-specific. For example, “Other Liability” – line 17 on these statements – will likely have commercial general liability experience, but it will also be muddied with other types of business that fall under this line, such as contractual liability or professional liability. 

Competitor Programs 

Many times, a new venture will try to emulate the admitted rating plan of a well-known competitor in the industry as a starting point.  

The underlying data for most admitted programs are usually publicly available via the state filings process. These filings may include historical premium and loss experience that is program-specific, which can be used to help identify if the program has been historically profitable for a very niche type of business.  

This information, in combination with the industry data noted above, as well any adjustments for program deviations, can help draw conclusions on the appropriate loss pick for your program. 

Rating Bureaus 

Bureaus such as the Insurance Services Office (“ISO”) or the American Association of Insurance Services (“AAIS”) perform rate reviews annually, resulting in loss costs that are considered adequate for lines of business such as commercial auto, commercial property, commercial general liability, etc. These can be used as a starting point when developing a loss pick.  

The company can load in target underwriting expenses and a profit provision to derive a loss cost multiplier (“LCM”) to bring these loss costs to appropriate premium levels.  

In addition, both rate and form enhancements can be added to assist with your competitive position, helping to achieve a better rate for the risk and maintaining profitability.  

A loss pick in this scenario is derived from the selected target expenses and profit load, as the base bureau loss costs are considered an adequate staring point at the onset. 

The Internet 

When all else fails and no data is available from the other sources mentioned, the internet is full of information that can help derive appropriate frequencies and severities for your niche business. Once obtained and found to be actuarially sound, they can be used to develop a loss cost (similar to the bureaus) and loaded with an LCM to derive a loss pick. 

Underwriting Expenses & Profit Load 

As part of the loss pick discussion, you will also likely have to address target underwriting expenses and profit load. Target underwriting expenses are defined as commission, taxes/licenses/fees, other acquisition expenses and general expenses. A factor of 1.000 minus these underwriting expenses, a selected profit load and LAE, is the initial target loss ratio. This initial target loss ratio will likely need to be supported using standard actuarial techniques.  

The Benefits of Actuarial Consulting Partners  

Deriving a loss pick is not a simple calculation. Applying the myriad of data points available – and knowing the best sources when some data sets aren’t available – is one of the advantages of working with experienced actuaries. The actuarial consulting experts at Perr&Knight have identified various methodologies to help with the derivation of an appropriate loss pick for your program that will be reasonable and supported using the described methods to assist with your new business venture. 

Contact Perr&Knight today to get started. 

Are You Prepared for California’s Increase in Minimum Limits?  

With the California homeowners market getting all the national attention due to its coverage availability issues, potential use of catastrophe modeling, and wildfire mitigation filings, it is easy to forget that California has another big change on the horizon impacting personal auto policies: increased minimum statutory limits.  

Senate Bill 1107 increased the minimum amount of coverage required for an auto liability policy from $15,000 per claimant and $30,000 per occurrence for bodily injury and $5,000 for property damage (15/30/5) to $30,000 per claimant and $60,000 per occurrence for bodily injury and $15,000 for property damage (30/60/15) This change represents the first increase since 1967.  

The new limits do not go into effect until January 1, 2025, but companies should be proactive in assessing how the new minimum limits will impact their book and their corresponding competitive position.  

Now is the time for companies to ask: “Is our company fully prepared for the upcoming change in California’s minimum auto liability limits?” 

Start Assessments ASAP 

The California Department of Insurance (“CDI”) required all auto insurance writers to submit filings by July 1, 2023 to ensure that every program had approved factors in place for the new limits. These filings, however, limited what could be proposed. Only companies with no factors in place for the new limits were allowed to add them, and no changes could be made to existing limit factors. 

With the new limits going into effect in a matter of months, each company should be making assessments today about what the new limits will do to its book and its competitive position.  

Waiting until the new year—or even later this year—could put companies at a significant risk of adverse selection if their current factors are severely out of line with the competition. Corrective action needs to take place now to gain approval before the roll-out on January 1. 

Is your company positioned to get the rate it needs for the new minimum limits?  

Projected Increases in Premium for Minimum Limits Policies 

Perr&Knight is constantly assessing the industry and has reviewed dozens of filings to understand where the market will move in 2025. Based on the filings submitted in response to the regulation, our experienced actuarial consultants calculate that the following premium increases will result for policyholders currently purchasing the minimum financial responsibility limits: 

Top 20 California Writers 

Change  Bodily Injury  Property Damage 
Mean  23.8%  17.9% 
Median  24.0%  13.5% 
Minimum  8.3%  2.4% 
Maximum  50.0%  44.4% 

California Non-Standard Writers 

Change  Bodily Injury  Property Damage 
Mean  41.5%  29.0% 
Median  43.0%  24.0% 
Minimum  12.0%  6.0% 
Maximum  63.0%  55.2% 

Even policyholders purchasing higher than the current minimum financial responsibility limits, but lower than the financial responsibility limits that will be in effect on January 1, 2025, could see a double-digit increase in premium.  

Based on our review of the filings required by the regulation, policyholders moving from 25/50/10 limits to the new 30/60/15 limits can expect the following increases: 

Top 20 California Writers 

Change  Bodily Injury  Property Damage 
Mean  6.0%  5.9% 
Median  4.8%  4.5% 
Minimum  0.9%  0.4% 
Maximum  15.0%  30.0% 

California Non-Standard Writers 

Change  Bodily Injury  Property Damage 
Mean  11.1%  15.4% 
Median  7.7%  9.0% 
Minimum  0.7%  1.0% 
Maximum  54.0%  42.8% 

The Time to Act is Now 

Will your company receive a premium increase in line with the statistics above? If not, a filing to adjust your relativities may be crucial to the health of your book of business. Two of the top 10 writers in California have submitted filings with updates to their increased limits factors in the second quarter of 2024. GEICO is proposing changes to see its premium for policies below the new minimum limits increase by 11% for bodily injury and 34% for property damage. 

The need for action is especially true for companies that exclusively write minimum limits. These companies will see every single customer receive an increase in the coverage on their policy. The question is, will the increase in premium be consistent with the increase in the underlying coverage?  

Protect Against Adverse Selection 

The factors included in the filing required to be submitted by July 1, 2023 may be mispriced due to limitations on what was allowed in that filing. There may have been old, existing factors at those higher limits that are mispriced because they were never used and were not allowed to be changed in the statutory filing.  

This can create the potential for some programs to be severely underpriced at the new minimum limits, leaving it susceptible to adverse selection, especially for non-standard auto customers who are highly price-sensitive and more than willing to leave their current carrier for a lower price.  

Partner with Experienced Actuarial Consultants 

For all these reasons, it is imperative that companies find out where they stand now and determine if they need to make a filing to set proper relativities for each liability limit. Any such filing would need to be submitted soon to allow enough time for review by the CDI and system implementation for a January 1, 2025 effective date for new and renewal business.  

Perr&Knight has filed numerous personal auto filings in California, and our actuarial consultants are uniquely qualified to assist companies in assessing their potential competitive position with the new limits and taking corrective action if necessary. 

Contact Perr&Knight today if you feel you may need some assistance. Our seasoned actuarial consultants can help you navigate these uncharted waters.  

How to Maintain Flexibility and Competitiveness in Long-Term Contract Rating Plans

There are many different types of long-term contracts, many of which are backed by contractual liability insurance policies (“CLIP”) and require admitted rate filings, such as auto warranty, guaranteed auto protection (“GAP”), and ancillary products, which include excess lease wear and tear, tire and wheel, theft, key replacement, interior/exterior appearance protection, windshield, paintless dent repair (“PDR”), and pre-paid maintenance.

There are also home warranties covering brown and white goods, such as televisions, audio speakers, mobile electronics, washers / dryers, appliances, and much more. Since these rating manuals are historically simple from a rating structure standpoint, it has been difficult to maintain flexibility and a good competitive position over time.

The actuarial consulting experts at Perr&Knight have identified key steps to help ensure a more flexible and competitive rating plan in the long-term contract space.

Experience Rating

Experience rating is the method in which the actual loss experience of the insured group is compared to the expected loss experience within the insured’s class. In long-term contracts, experience rating plans can be very simple and typically calculate a loss ratio by taking paid losses (over the experience period) divided by earned premium (over that same experience period).

Because long-term contracts earn premiums differently than standard contracts, the paid/earned loss ratio is more closely related to an ultimate loss ratio (assuming premium is earned appropriately). Premium adjustments are typically capped between +/-25% to +/-50%, similar to schedule rating. Schedule rating is not supposed to contemplate actual historical loss experience.

If you do include experience rating within schedule rating, you are limiting the intended use and available max/mins within schedule rating and could exhaust schedule rating max/mins solely by experience rating. Experience rating can help to keep the rates of your insured groups more in line with historical experience. This helps maintain your competitive position and profitability.

Expense Modification

Expense modification plans compare the actual underwriting expenses for an insured group to the standard allowance (or average) expenses of that group. If the actual expenses are lower, an associated credit is given, and vice versa.

Similar to experience rating, you should not include expense modifications within schedule rating as this again will limit the use of schedule rating due to required capping of the allowable debits and credits.

Interpolation and Extrapolation

Premiums can be calculated for various time periods, terms, mileage, initial mileage, coverage plans, deductibles, limits of liability, eligibility criteria, etc., using interpolation or extrapolation.

This is an excellent flexibility to include in rating plans, as it gives you almost unlimited options for all these rating variables, thus preventing the need for refiling when an insured is looking for a combination not specifically offered in your approved rating plan.

Additional Makes / Models

For coverages that have vehicle makes and models as rating variables, such as auto warranty, tire & wheel, etc., newly introduced vehicle makes and models can be classified in the same class as existing models that exhibit similar characteristics. Also, missing vehicle models (within available makes) can be classified in the same class as existing models that exhibit similar characteristics.

This adds additional flexibility and speed-to-market as you will not have to make additional rate filings for newly introduced or missed makes / models.

Class Plan Updates

Class plan may be updated due to emerging experience and the introduction of new vehicles.

For coverages that have vehicle class plans, typically auto warranty and tire & wheel, but there are others, a class plan is very detailed and typically assigns a class factor to every make/model or vehicle for both new and used vehicles.

This wording allows you to update the class assignments (thus the rate charged) based on historical experience and add new vehicles to the class plan without having to refile, resulting in a more accurate rate for the risk, speed to market and enhanced profitability.

Base Rate for Other Products

This rating variable is similar to (a) rating or refer to company rating such that if the product does not fit into any of the criteria within the approved rating plan, the following steps can be taken to develop a new base rate.

The frequency can be multiplied by the severity to obtain the loss cost. The loss cost will then be divided by the permissible / target loss ratio. The result will be the new base rate.

When available, our actuarial consulting experts recommend using a minimum of three years of historical data to develop the loss cost. If historical experience is not available, or not credible, the expected frequency and severity can be used to determine the expected loss cost.

This gives your company the ability to write a risk that falls under the main coverage type, but does not fit the approved rating plan. It provides significant flexibility and a definite competitive advantage.

Market Price Point

Many times, a price point such as $9.99 or $29.99 is more pleasing to an insured and easier to market compared to price points like $10.02 or $30.37. A downward adjustment in price, typically not to exceed 5%, may be applied to the premium.

This adjustment (which is generally downward and not upward) helps the marketing side of the equation assisting in product sales, and also prevents the need to refile when small adjustments are needed to align final rates with marketing desires.

Achieving rating flexibility in your long-term contract rating plan can improve your company’s competitiveness and enhance your bottom line. Our actuarial consulting experts can help.

Contact Perr&Knight today to get started.

Three Key Changes in California’s Proposed Filing Regulations 

On February 9, 2024, the California Department of Insurance (“CDI”) announced proposed regulatory rule changes that will impact the rate application approval process. These changes are part of the CDI’s Sustainable Insurance Strategy. The goal of the proposed changes is to increase “expediency and transparency in the prior rate approval process.”1 

Three key changes and their impact are outlined below. 

Extends review time for completeness of rate applications from 14 to 30 days 

Insurers submit rate applications for the following filing types: (1) new program filings; (2) transferred program filings; (3) rate filings; (4) rule filings; and (5) form filings. The filing submissions are reviewed by the CDI’s Intake Unit for completeness.  

For filing submissions that are missing required information, the CDI currently sends objection letters to insurers within 14 days.2 With the proposed regulations, this period is being extended to 30 days. If an insurer is unable to respond within the required timeframe, the filing is rejected by the CDI’s Intake Unit.  

Complete filing submissions are processed by the CDI’s Intake Unit and are required to be included on the CDI’s public notice list within 10 days of the determination that the rate application is complete.  

According to our actuarial consulting experts, the extension of the review time will result in the following: 

  • Increase in the number of days from filing submission to the public notice date
  • Increase in the number of days from filing submission to earliest approval (45-day mandatory waiting period from the public notice date); 
  • Reduction in the time to approval from the public notice date
  • No expected reduction in the time to approval from filing submission date.  

Although form and rule filings require less time to review for completeness, they will be subject to the same extended review times as rate filings. 

Redefines a complete rate application 

There are several changes which clarify and update the regulations that outline the information required for a complete rate application. The CDI already includes a number of these items as part of the current rate application process. However, the data reconciliation for rate filings is performed after the rate application has been processed by the CDI’s Intake Unit.  

With the new regulations, the data reconciliation will be performed at the beginning of the filing process and prior to public notice. In order for the rate application to be complete, all of the data must be reconciled and differences explained.  

The CDI publishes a Prior Approval Rate Application – Data Quality and Reconciliation Checklist (“checklist”) on their website. Prior to submitting a rate filing, companies should perform all the items on the checklist. The CDI has an internal tool that is used to perform all these checks on the data.  

Based on information provided by the CDI and a review of a number of rate filings by our actuarial consulting experts, a number of companies are not checking the data and have unexplained reconciliation differences. These companies receive objection letters requesting an explanation of these differences, which result in delays in the filing approval process. The CDI will not start reviewing a rate filing until all reconciliation differences are explained. When there are unexplained data reconciliations, more often than not, companies have data errors that require correction. The CDI does not currently have any threshold for immaterial differences, which is normally common when working with data that could be coming from different systems. 

The CDI will eventually provide their internal data reconciliation tool to the industry. Perr&Knight’s actuarial consulting experts have built a tool that performs the items on the CDI’s checklist and recommends all insurers perform these data checks or use an actuarial firm to assist with this.  

Furthermore, our actuarial consulting experts recommend that explainable reconciliation differences be mentioned in the Filing Memorandum. Otherwise, the insurer may receive an objection letter requesting an explanation, which will delay the filing review process. 

Defines Underwriting Guidelines 

The language in the current regulation does not define underwriting guidelines and states, “the Commissioner may later require the submission of relevant underwriting rules.” For a rate application to be complete, underwriting guidelines must be included regardless of whether or not any changes are being proposed to the underwriting guidelines.  

In order to ensure that complete underwriting guidelines are included with the rate application, the proposed regulations state the following: “A complete rate application shall include any and all criteria, guidelines, systems, manuals, models and algorithms the insurer uses to determine whether to accept, examine, inspect, cancel, non-renew, or re-underwrite a risk, or to modify an applicant’s or insured’s coverage or coverage options.”  

Although these items may include trade secret information, the CDI does not currently allow this to be submitted on a confidential basis, according to our state filings consultants. Furthermore, changes to these items require a filing to be submitted for prior approval.   

As a leading provider of actuarial consulting and state filings services to insurers in California, our consultants actively follow the California market and are very familiar with all the filing requirements in the state. We prepare and submit more California filings than any other company. If the proposed changes go into effect into California, we can provide guidance and support to ensure minimal impact to your state filings process. 

Let us help you navigate the challenges of California insurance product regulation. Contact the state filings experts at Perr&Knight.

Medical Professional Liability Exposure Bases – Is it Time for a Change?

Co-Authored by Jim Farley

For decades, medical professional liability insurance for health care providers has been rated using the same exposure bases with little change. The premiums for this line have been based on criteria such as provider-months (Bouska, 1999) and physician specialty classes, including surgical categories (Rice, et al., 2004). While these are certainly important considerations in determining a provider’s exposure to risk, they do not provide the full picture of exposure.

During our long history providing actuarial consulting services, we have seen little change in exposure bases for rating medical professional liability insurance. The healthcare landscape has evolved significantly in the last decade. When is the right time for a change? 

Evaluating Risk in Today’s Medical Landscape

Consider two general surgeons, Surgeon A and Surgeon B. Surgeon A and Surgeon B both work full-time in the same city. Surgeon A performed 150 surgeries in the past year, while Surgeon B performed 100 surgeries. Surgeon B did more consultations than Surgeon A, so the total amount of time working during the year is equal between the two surgeons. Which surgeon was exposed to more risk? 

It seems clear that Surgeon A, having performed more surgeries than Surgeon B, has a higher risk exposure; yet, based on what we know about the two surgeons, most medical professional liability policies would assign them the same exposure base, and likely the same premium.

This is not just a hypothetical scenario. During the COVID-19 pandemic, many elective surgeries were canceled. Surgical procedure volume in the United States dropped by 48.0% immediately following the March 2020 recommendation to cancel elective surgeries. Subsequently, surgeries in practice areas aside from otolaryngology rebounded to pre-COVID rates, but this initial decrease is still substantial (Mattingly, Rose, Eddington, et al., 2021). Thinking in terms of risk exposure, half of the usual number of surgeries should correlate to about half of the usual amount of insurance claims.

Other Emerging Risks

While the COVID-19 pandemic was a once-in-a-century event, there are plenty of other, more common occurrences that lead to canceled operations. Cyber-attacks are not uncommon in the Healthcare industry and have the power to cancel appointments and surgeries for extended periods of time. According to Ron Southwick, of Chief Healthcare Executive, “2023 [is projected to] be the worst year ever for cyberattacks aimed at healthcare organizations.” 

There are factors in many medical professional liability policies that discount premium for part-time providers, but this does not consider the full-time providers with changes in caseloads and appointments that are out of their control. Additionally, a premium determined solely based on provider specialty as an exposure base is unfairly favorable to providers seeing large caseloads (and taking on more risk) and unfairly discriminatory against providers working full time but seeing smaller caseloads.

A well-balanced book of business may see the premiums of providers with large caseloads and those with small caseloads offset. However, most insurers tend to write policyholders concentrated in certain geographic locations, which typically leads to a non-uniform book of business. Insurers writing policies with a higher-than-average number of patients may collect premium that is insufficient to address the increased risk of these large patient counts. 

Developing Appropriate Exposure Bases 

What can be done to develop more appropriate exposure bases and thus more closely link the premiums charged to the underlying risk of medical malpractice claims? Here are a few ideas from our actuarial consulting experts:

  • Insurers could include patient count as a scheduled item in their new business and renewal policy applications . From there, insurers could develop a factor for patient count, or even develop a base rate matrix considering both specialty and caseload.
  • Alternatively, insurers could maintain base rates and exposure bases currently in use and introduce a retrospective rating plan to address patient count. The number of operations and/or appointments for each provider during the policy period can be provided at the conclusion of the period and the insurance company could either charge additional premium or provide return premium, depending on the true exposure experienced by the provider.

In the realm of medical professional liability insurance, commonly acknowledged exposure bases like provider-months and physician specialty fall short of adequately representing an insured individual’s risk exposure. This is especially true for occurrence-based policies, but even claims-made coverage is susceptible to mispricing risks when not considering patient load.

Actuarially speaking, the number of insurance related claims a provider may face should logically demonstrate a positive correlation with the number of operations they perform or patients they treat. 

By not considering patient count – and, by association, its correlation with risk – a typical medical professional liability policy cannot fully account for an insured’s exposure to risk. In some manner, patient count must be included in the calculation of premium for medical professional liability policies, for the benefit of both insurer and insured. In short, it’s time to reevaluate how we calculate risk to cover today’s medical professionals.

Let the actuaries at Perr&Knight help you determine if your medical malpractice liability exposure base is appropriate given the class of business. Contact the actuarial consulting experts at Perr&Knight today.

Workers’ Compensation Pricing – Are You Doing Enough? 

In today’s fast-paced, digital world, there are more options than ever for employers to purchase their Workers’ Compensation (“WC”) insurance. Depending on where a business is located, employers may be able to request quotes and obtain coverage online, through an insurance agent or broker, directly from an insurance carrier or state fund, or by partnering with a Professional Employer Organization (“PEO”). With so many options available for employers to shop for WC coverage, it is more important than ever for insurance programs to have competitive pricing structures and for insurance providers to proactively monitor their WC programs.  

Insurance providers that put their WC programs on autopilot may jeopardize the profitability and competitiveness of their programs over time. For example: 

  • WC programs that auto-adopt loss costs and rates from bureaus for WC insurance without periodic review increase the risk of their rates not aligning with their actual experience.  
  • As shifts in the market happen, WC programs risk losing their competitive edge if they assume the structure of their program is appropriate without keeping an eye on competitors or market trends.  

Based on decades of providing actuarial consulting and filing support to insurance providers throughout the U.S., here are the questions you should be asking to achieve competitive WC pricing.  

“When was the last time we reviewed our rate adequacy?” 

Failing to conduct regular assessments of rate adequacy poses the risk of drifting further away from adequate premium levels and could lead to adverse selection. This situation could ultimately result in a double-digit rate increase to realign to the appropriate rate level. Such a sudden hike in rates may motivate employers to shop for WC coverage elsewhere and have an adverse impact on your business growth objectives. If you haven’t reviewed your WC rates within the past few years, you are overdue for an evaluation. 

“Are we experiencing a decline in business?” 

Companies that diligently monitor their WC programs do not merely follow the bureau’s guidance, they strategically file for appropriate rate decreases to maintain competitive pricing – a savvy approach to attract customers seeking lower cost options. Your company should consider whether rate reductions that exceed those recommended by the bureau are an available option. Filing appropriate rate decreases over time may help attract and maintain policyholders with favorable loss experience seeking to lower their premium costs. 

“What are our competitors doing?” 

Speaking of competitors, their actions can offer valuable insights into potential revenue opportunities your company may be overlooking. Analyzing the industry or specific competitors can help you formulate necessary program enhancements to ensure your continued competitiveness. 

“How can we enhance our pricing segmentation strategy?” 

To determine the effectiveness of your pricing segmentation, you should conduct a thorough analysis of the rating detail. This evaluation may reveal the potential need for updates to tiering, new class deviations, and rating discounts/credits, which can support your portfolio growth goals or enable precise targeting of specific market segments.  

In addition, by evaluating your portfolio by rating detail, you may discover it’s a good idea to discontinue underwriting certain risks. The analysis could also indicate further segmentation is needed. Did you know there are jurisdictions that permit filing rates for sub-classes? By doing a thorough review, you could discover an opportunity to split a single class code – due to diverging results based on distinct segmentations within that class grouping – to improve rate adequacy. 

Even if your WC programs are performing comparably to industry standards, a granular analysis of the rating attributes could hold the key to achieving competitive pricing. 

“Are we planning to grow?”   

If your intentions involve expanding your WC offerings into new jurisdictions, conducting a market analysis of competitor programs can provide valuable competitive intelligence to help you hit the ground running. By analyzing the approved programs of leading insurers, you can identify potential gaps in your proposed programs and ensure adequate pricing even before entering that market. 

“Are we staying on top of industry changes?” 

The greater your awareness of industry changes, the better prepared your company will be to file and execute changes without disrupting the business flow. One example is the California Department of Insurance’s evolving position regarding large risk alternative rating options (“LRARO”). Keeping informed of market changes allows you to develop, file and implement program revisions and offer more options to your policyholders.  

Work with actuarial consulting partners 

Keeping a close eye on all the factors that could impact your WC pricing is a time-consuming and potentially overwhelming endeavor. It’s understandable that so many companies choose to auto-adopt and maintain a consistent rating structure over time. However, it’s impossible to overstate the potential gains of closer program monitoring. 

Perr&Knight is a leading provider of actuarial consulting services for WC insurance and can help monitor your rate adequacy on a regular basis. In addition, our experienced actuaries keep up with current industry trends, regulatory changes, and pricing flexibilities and can serve as a valuable partner to ensure you stay informed and knowledgeable about the WC market.  

The bottom line on Workers’ Compensation pricing is that taking a “business as usual” approach isn’t enough. Sooner or later, lack of proactivity will catch up to you. Adequate monitoring and partnership with experts increase your chances of successfully achieving adequate WC pricing for your program. 

Let us help you determine if your WC pricing is adequate. Contact the experts at Perr&Knight today. 

2023 Florida Tort Reforms – What You Need to Know

In an effort to address affordability in the personal auto and homeowners markets, Florida has recently enacted significant reforms that have dramatically changed the tort law applicable to personal insurance policies in the state.  

Our actuarial consulting experts break down what this means for insurance companies and in the years ahead.  


For the past 50 years, Florida has been a no- fault state, where drivers rely on personal injury protection (“PIP”) coverage from their own policy to cover the cost of their injuries in exchange for a limitation on their ability to sue. Despite this intended limit, Florida’s PIP claims have been nearly three times as likely to be litigated as in other states1

Litigation is also a major cost driver in the property insurance market. In 2020, Florida accounted for only 9% of countrywide homeowners insurance claims but a whopping 79% of all homeowners insurance lawsuits2.  

Exhibits 1 and 2 below show the number of lawsuits filed against the top 20 personal auto and homeowners insurance carriers in the state of Florida, respectively.  

Exhibit 1 

Exhibit 2


Florida’s recent reforms include: Senate Bill 2A (“SB2A”), passed in December 2022, and House Bill 837 (“HB 837”), signed March 24, 2023. SB2A eliminated one-way attorneys’ fees and prohibited the assignment of benefits for residential or commercial property insurance policies written January 1, 2023 or later. HB 837 extended this by eliminating one-way attorneys’ fees in all but some declaratory judgments. In addition, HB 837 introduced new requirements for plaintiffs to recover damages. Most notably, it makes Florida a modified comparative negligence state, which prohibits claimants that are more than 50% at fault from recovering damages. It also reduces the statute of limitations for negligence claims and provides additional standards for bad-faith actions. 


Due to the prospective nature of ratemaking, rate filings now need to consider the new tort environment. Historical data alone will not be sufficient to project future losses. There is a high degree of uncertainty since the reform will influence attorney and plaintiff behavior in response to the new laws.  

These new patterns will take time to emerge, given claims with attorney involvement take longer to be adjudicated. These reforms are expected to reduce both the percentage of claims that are litigated and the average claim severity since non-litigated claims cost less than litigated claims. Lower payments will be made to plaintiffs’ attorneys, and the insurer’s defense and cost containment expense should also be reduced since fewer claims will need to be defended.  

The Florida Office of Insurance Regulation commissioned studies to determine the potential impact of changes for some past reforms, but no study is available yet for these recent reforms. Insurers must evaluate the anticipated impact of the reforms on their losses and loss adjustment expenses and reflect this in their rate filings. Experienced actuarial consulting partners like the team at Perr&Knight can provide support to inform rate filing changes. 

Private passenger auto rate filings open on or after July 1, 2023 have been required to submit detailed data to estimate the effect of HB 837 and to make necessary adjustments in the filing. Similarly, homeowners rate filings submitted after July 1, 2023 have been required to reflect projected savings due to the combined effect of several reforms over the past two years.  

We keenly understand the data requirements and reasonable projections to provide the support that is needed. Let Perr&Knight’s team of expert actuaries use our proven experience to assist with your Florida rate filing needs.  

Contact Perr&Knight today to learn more.   

The Advantages of Face-to-Face Client Meetings in a Post-COVID World

The business world underwent a radical transformation in the wake of the COVID-19 pandemic. Remote work, virtual meetings, and digital communication tools became the norm. However, as we emerge from the pandemic, it’s becoming increasingly evident that face-to-face client meetings still hold a vital place in the business landscape.

In this blog, we will explore the enduring importance of in-person client meetings and why they remain essential to building strong business relationships in a post-COVID world.

Building Trust and Rapport

Decades of client engagement have shown us that one of the most significant advantages of face-to-face meetings is building trust and rapport – especially for businesses seeking support from an actuarial consulting firm

While virtual meetings have undoubtedly bridged geographical gaps, there’s a certain depth and authenticity that only physical interaction can provide. Meeting someone in person allows for non-verbal communication cues like body language and eye contact, both crucial for establishing trust.

Face-to-face interactions foster a more personal connection, helping all stakeholders feel heard, valued and appreciated.

Effective Communication

Miscommunication is a common challenge in virtual meetings, often due to technical glitches or a lack of personal connection.

When occupying the same space, individuals can easily pick up on subtle cues and nuances in conversation, leading to better understanding and problem-solving. Since all clients in the insurance industry have unique business structures and needs, working relationships between a client and an actuarial consulting firm like Perr&Knight require as much collaboration and streamlined communication as possible.

In-person meetings also minimize interruptions and distractions, enabling participants to focus on the discussion at hand. For us, these working sessions often reveal a more detailed picture of our clients’ true needs, allowing us to arrive at the most effective solution even faster.

Enhancing Creativity and Innovation

Creativity often flourishes in face-to-face settings. Brainstorming sessions, idea generation, and innovative problem-solving are all areas where in-person meetings excel. Being physically present in the same room can spark new ideas in ways that virtual meetings struggle to achieve. The energy and synergy generated during face-to-face meetings can lead to breakthrough ideas and solutions.

Strengthening Personal Connections

Business is not just about transactions – it’s also about relationships. In-person meetings provide an opportunity to get to know clients or partners personally. Sharing a meal, engaging in small talk before or after the meeting, and sharing social activities all foster bonds that go beyond business.

These personal connections can lead to more enduring and loyal relationships, which are essential for the long-term success of any venture.

Reading the Room

Virtual meetings often lack the ability to “read the room.” Participants in online meetings might mute their microphones, turn their cameras off, or otherwise adjust their natural behavior when on camera.

Face-to-face meetings enable you to gauge the participants’ moods, reactions, and engagement levels more accurately. Particularly for sales teams, this in-person insight can prove to be invaluable. What a client doesn’t say can often yield important clues to their business needs or engagement with your company.

Equipped with this insight, your teams can adjust your approach, address concerns, and ensure everyone is on the same page. The subtle but crucial feedback is essential for making necessary adjustments and improving the meeting’s effectiveness.

Competitive Advantages

In a world where most interactions have gone virtual, businesses that prioritize face-to-face meetings gain a competitive advantage. They stand out as more committed, reliable, and willing to go the extra mile to nurture relationships.

In the insurance industry, the rush to replace in-person interaction with automated tools can sometimes introduce inefficiencies that slow product development and time to market.

An effective actuarial consulting firm partner understands the importance of balancing the advantages and limitations of communication technologies. At certain junctures, in-person meetings advance projects and relationships further than any digital tools, enabling insurance businesses to achieve more, even faster.

Logistical Challenges 

Though the points listed above are all solid benefits for face-to-face collaboration, scheduling and coordinating in-person meetings does present some challenges.

Planning face-to-face meetings is tricky when all the necessary participants are rarely in the office simultaneously. Scheduling trips to visit multiple clients within two or three days can introduce logistical roadblocks because everyone has different working hours due to the post-COVID world of remote and hybrid working situations.

Take extra care and provide plenty of advance notice to ensure all appropriate parties are available and prepared for an in-person meeting.

Travel Inconveniences

Years after the initial pandemic-related global shutdown, the transportation industry has finally reached the pre-COVID cadence. But travel has become more expensive, unproductive, and inconvenient.

Staying out of town to visit a long client list over several days can be expensive. Time away from the office reduces professional productivity. Meanwhile, many families have adjusted to a new normal involving scheduling flexibility. Extended stays away from one’s home base can throw a wrench into team members’ professional and personal lives.

Finally, navigating airports with today’s flight delays and cancellations can make travel very inconvenient – a challenge remote working has seemingly solved.

Industry Conferences Check All the Boxes

We have found that in this post-COVID world and remote working environment, attending more industry-related conferences is one of the most efficient and effective ways to see many clients in one place.

Actuarial consulting firms like Perr&Knight have clients spread across the country, so individual client visits aren’t always an efficient use of time or resources. Industry conferences provide a great opportunity to “meet halfway,” enabling insurance companies to get more done in a shorter period and allowing us to meet with more clients and prospects than we could otherwise.

Setting up meetings and dinners before the conference enables clients and consultants to make the most of every minute, providing in-person opportunities to connect professionally and socially.

While virtual meetings undoubtedly have their merits, the importance of face-to-face client meetings remains as crucial as ever. In a post-COVID world, these meetings provide a unique opportunity to build trust, enhance communication, foster creativity, strengthen personal connections, and gain a competitive edge. Incorporating in-person interactions into your business strategy can create more meaningful and lasting relationships, ultimately contributing to your success in today’s evolving business landscape. Face-to-face meetings are not relics of the past – they are the cornerstone of future success.

Connect in person with the experienced actuaries at Perr&Knight. Contact us today or see which upcoming conferences we’re planning to attend.

Nevada Defense Within Limits – Company Action Required

By Adrienne Lewis and Scott Whitaker

Nevada enacted Chapter 191 of the laws of 2023 (AB-398), which generally prohibits insurers from issuing or renewing a policy of liability insurance that contains provisions that reduce or limit the availability of liability coverage stated in the policy by the costs of defense, legal costs and fees and other expenses for claims. This change is effective for new and renewal policies issued on or after 10/1/2023 for policies written in the admitted market. Per guidance from the Nevada Division of Insurance, it does not appear that these changes apply to the Excess and Surplus market.

Costs of defense, legal costs and fees, and other expenses for claims are commonly referred to as Defense Within Limits (“DWL”) and are common in most types of liability insurance (e.g., General Liability, Professional Liability types of insurance, including Directors & Officers, Employment Practices, Fiduciary, and Errors & Omissions). 

Our lengthy experience providing actuarial consulting services for insurers in Nevada and throughout the U.S. has shown us that the cost of defending these types of claims can be significant and greatly impact the rates and rating factors used in determining policyholder premium. 

Forms Impact

Nevada requires approval in writing of all policy coverage forms, application forms, endorsements, and declarations pages before they are used. There is no deemer provision for forms filings. Many forms associated with commercial liability programs contain language associated with DWL. This language may include specific provisions, exclusions, per-claim limits, or aggregate limits.

All forms associated with DWL will require review and modification such that they do not limit the amount of liability or otherwise limit the availability of coverage associated with defense costs. In many situations, the forms may need to be withdrawn.

Rates/Rules Impact

Although rates and rules for commercial lines are typically exempt from filing requirements in Nevada, insurers still need to consider the impact of the revised legislation on their rating plans. A review of limited, publicly available Nevada rate/rule filings show that commercial liability programs typically charge 5% to 15% higher for defense costs outside limits as compared to DWL. Industry data similarly shows defense costs represent from 10% to 20% of indemnity and defense costs. The tables below show the ratio of defense costs to indemnity and defense costs for the Other Liability line of business.

Guidance from the Nevada Division of Insurance says the new law does not require unlimited defense costs. A separate limit for defense costs may be selected by the insured, including a limit of $0. To maintain your organization’s targeted profitability level in Nevada, we highly recommend an actuarial review of the rates and rules for products that contain DWL.

Partner with Experts 

Perr&Knight is a leading provider of actuarial and form consulting services and state filing support to insurers in Nevada. Our consultants actively follow the Nevada market and are very familiar with all the filing requirements in the state. Amendments to DWL provisions should be reviewed and modified to adhere to new requirements. Our experienced actuaries are available to facilitate a smooth process for filing updated forms.  

Contact Perr&Knight to learn more about Nevada’s Defense Within Limits changes and how we can help.

10 Questions to Answer Before Launching a New Insurance Product

Throughout our decades of designing, developing, and providing actuarial support for insurance products, we have seen firsthand what it takes to bring new insurance products to market. Unfortunately, a good idea isn’t enough. Even established companies are often surprised at the depth of detail and scope of supporting documentation required when developing a new insurance product.

Here are ten critical questions from the experts at Perr&Knight to consider throughout the insurance product development process, whether you are a traditional insurance company, InsurTech firm, startup, Managing General Agent (“MGA”), Managing General Underwriter (“MGU”), Program Manager, captive owner, insurance agent / agency, or insurance entrepreneur.

1. Who is your target market?

Upfront legwork like this will help you establish whether there is indeed a need for this product in the marketplace. Clearly defining your target buyer will also aid in determining how to market the product and how big of a return you can expect.

2. What is your projected premium volume?

Before diving into the product development process, it’s helpful to assess the size of the market for this product. Depending on the product type, this information might be easy to compile – or it might require deeper research. Experienced actuarial consulting partners like the team at Perr&Knight can help draft reasonable estimates for premium volume.

3. Who are your competitors?

Competitive research is valuable for many reasons. First, it lets you know if the market is already saturated or has room for more players. Second, you can learn from the successes or failures of similar existing products. Finally, if a similar product is already available, you can use this information to determine on what basis you can compete.

4. What type of insurance will your product provide?

Will your product fall under the scope of Property & Casualty (“P&C”), Accident & Health (“A&H”), or another type of coverage? Will you be providing group or individual coverages? Different coverages are subject to different regulations that also vary by jurisdiction. The answer to this question establishes a foundation that will inform nearly all other decision-making during product development. The structure of the product once again comes down to its type and use: commercial vs. personal, will your product be based on policy language already in use by bureaus, or will you need to develop independent policy language? Articulating your product’s structure will help set realistic expectations for timelines and cost estimates.

5. What triggers a claim under your product?

Defining the parameters to trigger a claim can tell you much about your product. Determining what doesn’t initiate a claim is equally important. Your actuarial consulting team will use this information to calculate the frequency and severity of potential claims, helping you to determine how the product will help potential policyholders cede insurance related risk.

6. How will the rates be supported?

How will the rating work? Can you base your rates on existing data, or will your actuarial consulting team need to obtain independent data? Are there similar products in the marketplace offering analogous coverages or will your actuaries need to use other data as proxies for the frequency and severity of losses?

7. Do you plan to retain risk or cede it off?

Many new entrants will not initially retain risk and will only make a commission on the product’s sale. However, over time, as premium volume grows and the market becomes well established, you may decide to retain risk and make a profit on underwriting. Structuring the right deal upfront with the insurance carrier is essential.

8. In which states will you offer this product?

This question is particularly important for overseas companies, who don’t fully appreciate the magnitude of difference between insurance product regulations in 51 independent U.S. jurisdictions. This is where partnering with actuarial consulting and insurance product development experts like those at Perr&Knight is critical. We understand all state-specific regulatory nuances and will help you sidestep avoidable pitfalls.

9. How challenging is the regulatory environment?

Again, each jurisdiction has a different set of regulations and expectations. Waiting until you’re deep in the filing process to discover state-specific requirements can create a last-minute runaround that can slow your time to market or even result in disapproval. Insurance experts like the team at Perr&Knight can explain well ahead of time what to expect so you can prepare all documentation before it’s time to submit to regulators.

10. Do you plan to write in the admitted or alternative market?

Products in the admitted market are often more “every day, run-of-the-mill” exposures. It’s the insurance product development process most people in the insurance industry are already familiar with. The advantages of writing business in the admitted market are that the taxes are often lower. However, the regulatory environment could make the approval process much more challenging.

Meanwhile, never-before-seen products have the advantage of being first to market. Although, there are some considerations when writing business in the alternative (or non-admitted) market. You will have to demonstrate that there is no admitted market for this product, which can require obtaining three declinations for standard types of insurance. The tax reporting requirements are also significantly more challenging. This isn’t to say that writing in the alternative market doesn’t have major advantages – avoiding much of the rates, rules, & forms regulatory process and cornering the market from the get-go can be a huge upside. It’s important to be aware of the challenges of the alternative market before you get too deep into product development.

Developing a new insurance product is an exciting process. However, failure to thoroughly think through the details of your product, target consumer, market, and regulatory environment will present hurdles that can be avoided. Adequate planning, preparation, and partnership with experts increases your chances of success.

Contact Perr&Knight’s accredited actuaries and experienced product development team to discuss your new insurance product.