Actuarial Consulting Archives - Page 4 of 6

Why Businesses Today Are Turning to Captive Insurance

States throughout the US are seeing the number of captive formations skyrocket compared to the past. The 2021 year showed significant increases in the world’s largest captive domiciles. The number of Vermont-licensed captives grew by 31 in 2021, the largest net gain (new captives less dissolved captives) in the domicile’s long history. The table below shows the 10 domiciles with the largest gains over the 2021 year.

Two key trends in the current hard-market cycle are driving up the number of captive formations: (1) demand for cyber insurance; and (2) climate changes that have steadily driven up property premiums.

As times change, more businesses recognize the value of captive ownership. If your company has never considered self-insurance through captive insurance, now may be the time.

Cyber insurance has become a must-have protection for today’s businesses

Cyber insurance continues to be a hot topic in the industry. As malicious actors become more organized and their attacks more sophisticated, companies without cyber insurance are at risk for potentially devastating ransomware ambushes. Large companies and government entities have been bolstering their cybersecurity protections and can afford to pay cybersecurity analysts, an increasingly scarce resource, making it more challenging for hackers to hijack their data. As a result, bad actors are turning to easier targets: schools and universities, small- and medium-sized businesses, municipalities, and other organizations less equipped to mount a strong defense.

Organizations that previously felt they weren’t significant enough to warrant hacker attention are now prime targets.

As cyber premiums rise, more companies are self-insuring

Cyber insurance premiums nearly doubled industrywide in 2021, and the increases have continued through the first quarter of 2022. Organizations waking up to the need for cyber insurance are facing a catch-22 – they know they need it—but it’s costly.

Companies are forming captives or adding captive insurance to their plans to manage the high cost of cyber insurance premiums. But businesses that have never licensed a captive are often unsure where to begin. Speaking to the experienced actuaries at Perr&Knight is a great start. We’re available to answer questions and provide support through the process of obtaining a captive license.

Lack of historical data for cyber insurance

For companies that already have a captive in place and want to add cyber insurance, our actuarial consulting teams can help with this.

When adding coverage to a captive, companies must provide a business plan amendment to captive regulators, including estimated captive premiums. However, because cyber insurance is so new, the availability of historical data creates challenges determining premiums for this coverage.

Again, this is where working with experienced partners like Perr&Knight is advantageous. We have developed proven methods for estimating captive premiums based on decades of actuarial consulting expertise.

High property premiums lead to more captive formations

Property insurance is getting hit from multiple angles. Climate change is increasing the number of weather-related property claims. Tornadoes, floods, wildfires, and other significant weather incidents are happening with greater frequency and intensity—and in never-before-seen areas. These catastrophic events continue to drive the hard market, resulting in insurance affordability and availability issues for many companies.

Additionally, regions throughout the nation are experiencing a runup in insured property values. If a business hasn’t had an appraisal in a decade, they may suddenly find themselves paying substantially higher premium based on their property’s amended value.

Captive insurance can mitigate the affordability problem, which is why more businesses opt to self-insure with a captive.

A pre-feasibility study provides direction

Conducting a pre-feasibility study with an experienced actuarial consulting partner can help determine whether captive formation makes sense for your organization.

At Perr&Knight, we have developed methodologies to produce accurate pre-feasibility studies that provide insight into whether captive ownership makes sense for your business. A pre-feasibility study is not only a cost-effective means of gathering business intelligence; information contained in the study can serve as the basis for the actuarial feasibility study that captive regulators will require.

As times change, captives are here to stay

As the world shifts around us, companies recognize the potential benefits of captive insurance. If your company is considering captive ownership or is already well down the path of forming a captive, the team at Perr&Knight can answer questions, provide direction, and deliver insight into the best course of action.

Contact the actuarial experts at Perr&Knight to conduct a pre-feasibility study or to discuss captive insurance options for your business.

Are Your Personal Auto Rates Keeping Up with Soaring Claim Costs?

by Andrew Douglas

In the personal auto insurance industry, the cost of repairing or replacing cars involved in accidents has spiked and continues to rise. These increases appear in insurer claim severity data as double-digit percentage increases in the cost of covering property damage and collision claims. Propelled by persistent supply chain shortages, general inflation, and shifting composition of vehicles under coverage, some of these higher costs may be here to stay.

Insurers should be responsive to these changes or risk inadequate rates to cover future costs. As actuarial consulting partners to some of the nation’s top insurance companies, we have helped many insurers accurately predict future premiums needed to keep up with these rising costs.

Here are some factors influencing higher costs and what to expect in the coming year.

Claim costs have risen dramatically

Property damage coverage and collision coverage costs are tied to the price of vehicles and vehicle parts. The cost of vehicle repairs and replacements has sharply increased, coinciding with pressures on the global supply chain caused by COVID-19, changing consumer demand, and inflationary impacts.

Countrywide data shown in the table below reveals the average cost of a claim for property damage and collision coverages has increased by over 30%. Many areas of the country have experienced more significant spikes. For example, Florida, Georgia, Maryland, and New York all have experienced claim cost increases closer to 40%.

Source: Chart created using data from the Insurance Services Office, Inc. Fourth Quarter 2021 Private Passenger Automobile Fast Track Data Circular AS-PA-2022-013 published on May 12, 2022. Includes copyrighted material of Insurance Services Office, Inc., with its permission.

Safety features drive up costs

New safety-related vehicle features are also raising the price tag for repairs as late-model vehicles feature more crash avoidance technology than ever. True, some of these technologies reduce accident frequency. However, expensive new technologies also elevate repair costs as many of the parts used in these systems are located on the vehicle’s exterior.

For example, the Insurance Institute for Highway Safety (IIHS) April 2019 report showed the average payment per claim for damage to the insured vehicle goes up by $109 for vehicles equipped with the forward collision warning without autobrake.

As the auto industry promotes tech-powered safety features as a selling point, increased associated repair costs are a trend we don’t expect to reverse. According to the IIHS, the percentage of registered vehicles estimated to utilize these systems will increase by over 20 percentage points by 2024.

Shift toward electric vehicles also has an impact

Car buyers’ affinity toward electric vehicles (EVs) will also push severity up. Overall, the number of electric cars on the road in the United States is small, but in some areas like California, EVs make up a significant proportion of new vehicles. In the near term, severity will rise with the expansion of EVs on the road because it takes time to build a robust parts network and shops will need to invest in training to service these new vehicle types.

Additionally, global semiconductor shortages continue to squeeze the supply of microchips in cars, which means low supply and high prices. The dynamics causing parts shortages are likely to persist into 2024 (S&P Global, 2022).

As gas prices rise and the popularity of electric vehicles continues to climb, claims costs may trend upward as well.

Insurers nationwide are scrambling to increase rates

Though most insurers reduced rates and/or returned premiums during the height of the pandemic, insurance companies today are feeling the pressure of rising claim costs, resulting in a mass push to increase rates. Due to this realization, rate increase requests are pouring into Departments of Insurance across the country as shown in the graph below. States like California are experiencing long wait times for rate increases to be approved.

Source: Chart created using data from S&P Global Market Intelligence

The type of support required for personal auto rate filings varies by state. With staffing shortages slowing down the filing review process at Departments of Insurance and inflation putting pressure on the rates charged by insurance companies, it is more important that the submitted filing meets all the state-specific requirements. Improving the time to approval could save a company millions of dollars. Partnering with actuarial consulting experts like Perr&Knight for support can reduce the risk of inaccuracies that can slow the approvals process.

Higher costs are here to stay

Supply chain shortages and inflation, new safety technologies, and EV popularity are driving claims costs up and show no sign of abating any time soon. To keep pace with higher expected loss costs, insurers should proactively keep pace with rate increases. Actuarial consulting partners like the team at Perr&Knight can evaluate rates and rating structures to ensure rate adequacy and determine what actions are needed to promote both short and long-term success.

Contact Perr&Knight today to let our actuarial consulting and state filings experts help you ensure the accuracy of your personal auto rates.

Guidelines for Filing Program Business

by Michael Covert

Insurance carriers have become more and more interested in writing “program” business over the recent years. In addition, many carriers only have a single carrier to work with, at least at the onset. Every carrier writing program business wants to have as much flexibility as possible to continue to add new programs and program administrators. Based on the experience of our actuarial consulting and state filings experts with various Departments of Insurance (“DOIs”) across the majority of lines, we describe below the most efficient way to set up nationwide filings and minimize the possibility of material compliance concerns.

What is program business?

According to the Target Markets Program Administrators Association, Program Business is defined as insurance products targeted to a niche market or class, generally representing a book of similar risks placed with one carrier. The administration of the program is done through Program Specialists, often referred to as program administrators or managing general agents (“MGAs”), who have developed expertise in that market or class. Although administrative responsibilities are negotiated between the Program Specialist and carrier, the responsibilities of the Program Specialist include underwriting selection, binding, issuing, billing, and oftentimes marketing, premium collections, data gathering, and claims management/loss control.

Bureau “Base” Program Filings

For the standard commercial lines, program business typically uses Insurance Services Office (“ISO”) or other rating bureaus for loss cost/rates, rules, and forms, but program business can be more than the standard commercial lines and can span across almost all Property & Casualty lines of business.

Some carriers choose to set up a “Base” program (usually for commercial lines) that any program administrator can use. For example, a Base program, such as commercial general liability, might adopt all the bureau loss costs, rules, and forms. There is no need to make a filing that is specific to a single program administrator or target market/class of business. This gives the program administrator the ability to start writing immediately rather than waiting for program filings to be prepared, submitted, and approved for their specific program.

According to our actuarial consulting experts, the Base program generally has rating flexibilities such as multi-tiering and a schedule rating plan, so the carrier can appropriately price the various markets and classes of business written by the carrier’s program administrators. If there are specific rates and forms that are required for a target market or class of business, the carrier will prepare and submit filings for these program-specific rates and forms. Generally, these are miscellaneous items that can be added on to the Base program and are simpler / quicker from a state filings standpoint compared to one with a complete program.

One of the drawbacks of the Base program filing approach is that changes have the potential to impact all program business. If a carrier is adopting an ISO loss cost change, one of their program administrators may not want to adopt the loss cost because of the impact on their specific niche market. Under this scenario, the carrier may file an exception in the Base program and carve out this specific market by having independent loss cost or rates for the impacted class of business. For the Base program approach, every time the carrier is filing a change to the Base program, they need to assess the impact on all their program business.

Program Business Filings

Rather than have all the program administrators use the same Base program filing, a carrier may elect to file each program separately. If a carrier chooses to also file a Base program, the program business filings are typically underneath the main Base program. This means that eligible risks are written in the program business filings and other risk are written in the Base program. The program business filings and the Base program filing are independent of each other in terms of bureau loss cost, rules, forms and company exceptions. When carriers have program business filings, they generally give the program business filing a special program name, like “Small Contractors Program”, with distinct eligibility guides to distinguish it from other programs the carrier may already have in place.

Under the program business filing approach, new program filings (rates, rules and forms) are needed for each new program administrator and it takes longer to get the program to market. However, our actuarial consulting experts have stated that structuring it this way makes the process much cleaner for rate revisions and program changes as no program filing is connected in any way to another under the same line of business.

Having your program filings connected to the Base program, although it can be done, generally causes issues. First off, many DOIs do not permit references (or links) to another program which makes tracking of these “links”, and lack thereof, difficult from a compliance perspective. In addition, if you make a change to the Base program, it could impact all linked programs which could potentially result in the same drawback mentioned for Base program and the change may not be desired by all program administrators.

Concerns with overlapping programs

Based on the experience of our actuarial consulting experts, multiple states have issues with a single carrier having multiple programs under the same line of business that could potentially offer the same insured different premiums for the exact same coverage. Many times the argument is made that these “programs” are independently run by separate management teams, so there is no insurance offering to the same insured by the same individuals. This argument does not always work and is problematic in California along with some other states. In addition, there are some states, such as California, that take this one step further in that no program can overlap within an entire insurance group, not just the individual carrier. When writing multiple programs for the same line of business under a single carrier, there are typically a few ways to differentiate programs in order to not run into state filing issues, which include the below.

Mutually exclusive underwriting guidelines

You are permitted to have multiples programs in all states if the underwriting guidelines are mutually exclusive, meaning no exposure overlaps between any approved program. For example, you could have a long haul trucking commercial auto program and a public auto commercial program, or from a personal lines standpoint, you could have one program that requires a usage-based insurance (“UBI”) device connected to the vehicle that tracks mileage, speed, breaking, etc. which impacts the driver’s premium and a regular program that does not have a UBI device requirement.

Material mandatory coverage differences

Multiple programs with similar exposures may be allowed to the extent that the programs have material mandatory coverage differences. For example, you could have an HO-5 (Comprehensive Form) homeowners program and an HO-3 (Special Form) homeowners program, since an HO-5 program is meant to be more expensive because the policy form is much broader than the HO-3 policy form. Issues can arise if the HO-5 premium is lower than HO-3 for the same risk. Additionally, if an applicant is eligible for both programs, the carrier must make both programs available to the applicant.

Different Distribution channels

Carriers may use distribution channels to differentiate programs, which include commission-based programs written by independent or captive agents and direct programs, with no commission, which are often sold on the internet.

Multiple Carriers

If an insurance group has more than one admitted carrier, the same, or similar programs can be filed under each carrier with none of the above issues occurring, except in a few states, based on our state filings experience. As was mentioned above, there are some states that look at the entire insurance group, not just the carrier.

Workers Compensation Issues

This line of business is different than other lines. In most states, due to statutory or other requirements, carriers may only have one program and must offer the same rates to everyone for standard (guaranteed cost) business. Therefore, a carrier that might have multiple commercial auto programs under the same carrier, can only have one program for workers compensation. In some jurisdictions, carriers can file to enhance the bureau rating structure, vary the rates offered within their single program, and individually rate certain qualifying risks.

Do you need guidance on maximizing the number of programs you can write under a single carrier in your personal or commercial lines rating plans? Our actuarial consulting and state filings experts at Perr&Knight are here to help.

California PPA Rate Filing Moratorium: What Should Insurers Do?

by Brett Horoff

As loss ratios for personal auto continue to climb in California, insurers are experiencing significant pressure to raise their rates. Frequencies have been increasing from the lows hit during the pandemic and severities trends are at levels not seen for decades – both of which are pushing loss costs above levels seen pre-pandemic. At the same time, the California Department of Insurance (“CDI”) has a rate filing moratorium on any increases for personal auto and has not approved any personal auto rate increase for over two years.

Many companies feel their hands are tied and there is nothing that can be done until the moratorium is lifted by the CDI. However, according to our actuarial consulting experts, there are several options available to insurers when it comes to addressing a needed rate change for personal auto in California.

Submitting a rate filing during the rate freeze

There is no debate that the pandemic has had an impact on personal auto. Behind the scenes, the CDI has been evaluating the most recent data available from insurers to determine the impact of the pandemic and how this should be addressed in personal auto rate filings. At this moment, the CDI has given no indication as to when they will complete their review. As a result, most companies are not spending the effort required to prepare and submit a rate increase filing for personal auto in California, which the CDI will just put on hold.

Over the last several years, the average time to approval for a rate filing in California has been steadily increasing and the problem has been made worse by a staffing shortage at the CDI. Prior to COVID-19, it took an average of 150 days to receive approval on rate increase filings for personal auto and homeowners – both of which are heavily regulated lines of business in California. Now, it is taking over 300 days to receive approval on rate filings for homeowners. Part of the reason for the lengthy review is that every rate filing for homeowners needs to be reviewed by upper management including the insurance commissioner. It is not unreasonable to anticipate the same treatment for personal auto. Which means if you submit a rate filing today, it might take a year to receive the approval. Any company that has adopted the “wait and see” approach and is taking no actions on their personal auto program will likely have subpar results in the next year and may be playing catch up for multiple years.

Several of the top 20 carriers have recently filed for rate increases on their California personal auto programs including the following companies: GEICO, Interinsurance Exchange of the Auto Club, Mercury, Progressive, Infinity and Wawanesa. The filings for these companies show strong support for a rate increase. Does this mean the CDI will start approving rate increases for personal auto soon? Nobody really knows the timing on this – the insurance commissioner will likely err on the side of keeping the rates low for consumers. However, eventually the freeze on rate increases will be lifted and the companies that have already filed will be first in line to receive approvals on rate increases. If an insurer anticipates needing a rate increase for personal auto within the next year in California and has not started the rate filing process, it is time to get moving on this.

Filing for a variance

Most insurers have not submitted a rate increase filing because they do not have sufficient data to support an increase using the CDI ratemaking methodology. For companies that do not have credible data in the last 12-months, the CDI requires multiple years of data, which includes the period impacted by the pandemic. Furthermore, the premium and loss trend calculations required by the CDI require at least 12-quarters of data and will also be impacted by the pandemic. As a result, a rate filing for personal auto may need a variance on the loss and premium trend. Filings for variances must make public notice, so it is important to include this in the initial filing or there could be delays in the approval of the filing.

When preparing a rate filing, our actuarial consulting experts recommend that insurers review recent competitor rate filings, which have valuable information, including their request for variances. Several of the large carriers have submitted filings with fully credible data for the last 12 months. For companies that do not have credible data, the trend data in the competitor filings may be helpful – especially given the lag in receiving available industry data. Additionally, the CDI has a COVID-19 questionnaire that is required with every rate filing for the lines of business impacted by the pandemic. The responses to the questionnaire include insight from the filing company on the impact of COVID-19 on their business, which companies may find helpful in preparing their own rate filings. Also, a review of the objections in these filings along with the corresponding responses may assist a company in preparing a filing that more thoroughly addresses all the CDI’s concerns, which will in the end speed up the filing review process.

Waiving or not waiving the deemer

Nowadays, the CDI requests a waiver of the 60-day deemer on virtually all rate filings in order to have more time to review the filing. Insurers have accepted this as part of the rate filing review process and have historically waived the deemer. Companies do have a choice when it comes to waiving the deemer. Most companies believe the filing will be disapproved without the waiver of the deemer, which is not true. If a company decides to not waive the deemer, the CDI’s only option is to issue a notice of hearing or let the filing be deemed approved. Since there is no chance that the CDI will let a rate filing be deemed approved, not waiving the deemer will result in a notice of hearing.

When the deemer has been waived on a filing, the insurer has the option to reactivate the demeer. Wawanesa has chosen to do this with their pending personal auto rate filing, which was submitted December 13, 2021. Since the CDI has a moratorium on rate increases for personal auto and was unable to complete their review of the rate filing before the deemer date, the CDI issued a notice of hearing for the Wawanesa filing on May 3, 2022 stating the following: “the Commissioner is currently still conducting his review of the Application and has not yet sufficient time to determine whether additional information is required or to determine whether the requested rate change is excessive, inadequate, and/or unfairly discriminatory.” The CDI and Wawanesa have subsequently held scheduling conferences and an order has been drafted with the date for the evidentiary hearing.

Many insurers and our actuarial consulting team will be actively following the Wawanesa filing to see how it plays out. The hearing may force the CDI to review the filing and the supporting data within a certain timeframe and determine whether any rate increase is actuarially justified by the company. Other insurers have chosen to waive the deemer on their rate filings and have continued discussions with the CDI with the hopes that the CDI will change its position at some point. Normally, the CDI and insurers want to avoid a hearing and work together to find a solution, which ultimately may have an insurer agreeing to a rate change lower than the filed amount. Depending on the outcome of the Wawanesa hearing, there may be more companies choosing the Wawanesa route and opting for a hearing with the CDI. That said, the CDI may also change its position at some point and start allowing rate increases for personal auto.

Class plan filings are an option

Although the CDI is not currently approving rate filings for personal auto, insurers are able to file and receive approval of revenue-neutral class plan changes. In a time where the rate level on an overall basis may be below target, insurers should be carefully reviewing their class plan and ensuring the rate adequacy is the same across all class risks. Otherwise, companies may see shifts in the mix business into classes that are less adequately priced resulting in a further deterioration of the overall loss ratio on the program. Additionally, insurers can update their auto physical damage model years and add the latest model year through a class plan filing. When submitting the model year filing, our actuarial consulting experts advise insurers to also include the annual symbol filing in the class plan filing.

Use an expert with years of California experience

Having an expert with years of experience preparing personal auto rate filings in California could improve the time to approval and potentially save a company a substantial amount of money. Whether it is preparing the actual rate filing or performing a review of a rate filing prepared by the company, an expert can provide guidance that will increase the chance of having the most successful filing.

Perr&Knight is a leading provider of actuarial and state filing services to insurers in California. Our actuarial consulting team actively follows the California market and is very familiar with all the filing requirements in the state. We prepare and submit more California filings than any other company. Our actuarial consulting experience includes expert testimony on rating filings and providing guidance to industry associations.

Please contact us for any insurance filings support that is needed with your California insurance products.

Workers’ Compensation Underwriting: How Automated Tools Are Changing the Game

by Casey Tozzi

Underwriters and actuaries are under constant pressure to meet demands for increased efficiency and innovation. Though there are more data sources than ever, determining how best to balance data insights with underwriter expertise remains a challenge.
Where should risk management teams direct their focus?
How can underwriters achieve consistency?
Workers’ compensation presents unique complexities. With regulatory processes and large risk rating options that vary by state, workers’ compensation pricing creates an additional gauntlet of details that even experienced underwriters may struggle to manage. The need for comprehensive documentation means underwriters today are facing an uphill battle: how to efficiently make meaningful use of data to improve judgement, not cloud it.
In order for an underwriter to effectively do their job, they need automated workers’ compensation tools that provide quality benchmarks helpful for schedule rating credits and debits, retrospective rating, and large deductible plans. These insurance-specific tools help underwriters and insurance entities improve efficiency and provide data-driven documentation for compliance.
Here are three areas where automation can be a game-changer.

Large Risk Schedule Rating

Because large risks are big enough to be schedule rated, underwriters have ranges available to develop premiums. Large Risk Schedule Rating tools are a comprehensive, data-driven solution that can be utilized to assist underwriters with schedule rating debits and credits. These tools provide the following key features:

Consistency with company’s approved program
Insights on a particular risk relative to the average risk contemplated in the bureau rates
Data-driven results for underwriters
Built-in documentation

Retrospective Rating

For risks who elect to have their premiums based on their actual loss experience during the term, underwriters will need to determine the initial premium and all the necessary parameters that will apply at future adjustments.
Retrospective Rating tools help support workers’ compensation underwriters in the following ways:

Calculate the basic premium for retrospectively rated policies
Allow for flexible user inputs
Comply with plan rules and company guidelines
Provide built-in documentation

Large Deductibles

Large Deductible tools provide benchmarks to supplement underwriter judgment and include documentation for the underwriter’s files. Below are some advantages of using this automated solution when developing large deductible workers’ compensation plans:

Ability to develop multi-state large deductible premiums
Ensure compliance with approved plan rules and company guidelines
Availability of built-in documentation

Automation Tools Support Underwriters

Underwriters are essential to risk evaluation. Their experience, discretion and judgment are an important part of the process. These automation tools use data to inform underwriters on the risk and allow them to focus on the aspects of their job that require their expertise. Additionally, they provide a level of control and consistency to workers’ compensation underwriting that offers peace of mind in the event of an audit or other examination.
Workers’ compensation pricing will always remain an important task for underwriters. However, smart automation puts another helpful tool at their disposal.

Perr&Knight’s Automation Tools

During our decades of actuarial consulting for the insurance industry, Perr&Knight’s experts have built workers’ compensation rating tools for the industry with all the features mentioned above. We have also added custom configurations unique to each program and jurisdiction so that the tool is consistent with approved rules and company guidelines.
In addition to tailoring the tools for each program, our actuarial consulting teams can update the tools to track alongside industry approvals and workers’ compensation metrics. Our experts are also on-hand to add new enhancements as programs change. These updates ensure the tools keep pace with industry experience.
Contact the experienced actuarial support teams at Perr&Knight to discuss how automation can support your workers’ compensation rating process.

How Employees Drive Change at Perr&Knight

by Jason Hudson

We firmly believe our achievements as an insurance advisory and actuarial consulting firm rest squarely on the shoulders of our talented team members. For nearly 30 years, we have continued to seek out and develop innovative, experienced and engaged professionals to bring industry-leading support to our clients. Just as our talented team members add value and drive change at our clients’ businesses, they drive change in internal operations at Perr&Knight as well.

Measuring Employee Engagement

In 2015, the diverse group of team members on Perr&Knight’s Employee Development and Appreciation Committee recognized the importance of employee engagement and the need to measure it. They created a comprehensive 60-question survey to obtain honest employee ratings, feedback and insights across nine categories: communications, social connection, career/professional development, management training, company vision/services, work/life balance, fairness, performance & accountability/feedback, and compensation. The survey is comprised of positive statements about Perr&Knight to which the employee responds how they feel, i.e. Strongly Disagree, Disagree, Neutral, Agree or Strongly Agree.
Here is a sample of some of the positive statements contained on the survey:

Information and knowledge are shared openly within Perr&Knight.
I have been provided clear direction/feedback on how I can advance my career at Perr&Knight.
People of all cultures and backgrounds are respected and valued at Perr&Knight.
I have a clear understanding of how my department’s goals and objectives relate to corporate goals and objectives.

Each of the positive statement response options is assigned a rating from 1 (Strongly Disagree) to 5 (Strongly Agree). By assigning ratings to the responses, we’re able to aggregate results and score Perr&Knight in each of the nine categories. The survey is anonymous, but contains some demographic questions related to tenure, experience, working location and management level. So, in addition to calculating an overall score, we can calculate and compare scores by demographic group.

Making Informed Changes

Once the survey is completed, the aggregated scores by question, category and demographic group are shared with the principals of our firm. Because Perr&Knight has issued the survey every September since 2015, a history of the scores is shared as well.
Over the years, the survey results have been very informative – low-scoring categories have helped us realize where we need to focus more attention. For example, lower scores in the management training category resulted in the roll-out of online management training last year. Similarly, less than optimal scores for a question about senior leadership communication prompted the Employee Development and Appreciation Committee to host quarterly principal communications. One year, the scores by demographic revealed a potential engagement issue amongst our long-tenured staff, prompting one-on-one check-ins to seek more detailed information from that group.
The history of scores has also helped us see the impact of our initiatives. Since the beginning of the COVID-19 pandemic, most of our workforce has been working from home, which was a big change for our staff who primarily worked in our offices previously. Though we’re all physically dispersed, company management has made a concerted effort to help employees feel connected to one another through company-wide virtual activities like online games, virtual holiday parties and monthly birthday celebrations. The scores of the 2020 and 2021 surveys showed this effort is worth it, as our social connection score increased year over year.
Each year, company management reviews the scores and responses then shares the overall results with all employees, including our score by category, change in score from last year and common themes from the responses to open-ended questions. We explain that company management will use the results of the survey as a guide when developing initiatives and setting priorities for the coming year. In this way, our employees know they have made an impact.

Evolving Our Approach

The Perr&Knight employee survey is constantly evolving. We review the survey’s questions and make minor tweaks every year. Over the past six years, we have expanded the engagement survey to 90 questions. We recently changed the “Fairness” category to “Diversity and Inclusion,” with the aim of identifying and addressing any D&I issues within our organization.
We also added open-ended questions to provide opportunities for staff to share their thoughts. Some examples of open-ended questions are as follows:

How can social connection be improved within Perr&Knight?
How could Perr&Knight’s company vision be more clearly communicated?
If there was one thing that you could immediately change about Perr&Knight, what would that be and why?

While the numerical scores to the positive statement questions help us evaluate how we’re doing, the open-ended questions are a source of inspiration. We are fortunate that our smart, creative staff members are willing to share their ideas, as we are always happy to listen.
Employee engagement is a characteristic of a thriving insurance consulting firm. At Perr&Knight, we are not content for our employees to simply be “comfortable” or “satisfied.” We want our teams to be truly engaged in the work they do and proud of the company they represent. In addition, valuing our employee’s opinions and providing a safe space for all to share their diverse perspectives will continue to be hallmarks of Perr&Knight’s culture as we grow and serve the industry. As such, we plan to survey our employees in the future so they can continue to drive change.

Interesting in joining the team at Perr&Knight? Visit our Careers page and browse our open positions.

COVID-19 Effects on State Filings

by Tanya Goerg

Authors: Tanya Goerg, CPU, ARC, AINS and Scott Whitaker, MCM
The ripple effects of the COVID-19 pandemic continue to reverberate throughout the insurance industry. As with nearly all businesses, insurance industry personnel and insurance regulators had to make an immediate and sudden shift to remote work which also immediately impacted form, rate, and rule filings. While improvement has been noted over time, the industry continues to experience impacts such as staffing challenges, increased volume of filings, and in some states, continued delays in review, acknowledgment, and/or approval of filings.
Facing pressure from legislators to provide relief for struggling consumers, Departments of Insurance (“DOIs”) also scrambled to issue bulletins and notices that outlined greater consumer protections.
Here are some of the key pandemic-related impacts on state filings we are observing.

Pandemic/communicable disease exclusions

Many DOIs have temporarily or permanently adjusted their position–through bulletins/notices or filing interrogatories–on exclusions specifically related to “pandemic” or “communicable diseases.” The DOIs are not allowing exclusions, requiring language changes, or allowing only with sub-limits.
While these DOI positions are primarily noticed with new program filings, they may also be experienced with form, rate, or rule update filings associated with “pandemic” or “communicable disease” exclusions.
It’s important to know that legislative activity regarding this issue is far from settled. Litigators in many states are encouraging legislators to strip away or modify pandemic-related exclusions, but whether these remain a permanent aspect of new state filings is unclear at this point.

Rate relief & telematics in auto

Regional lockdowns dramatically reduced the amount of traffic on the road, shifting the landscape for insurance premium calculations and opening the door for consumer refunds.
As of February 2021, the insurance industry as a whole returned nearly $14 billion in premium to insureds. Regarding rates and rules for auto programs, some states required one or more rate relief filings, while others prohibited or limited rate increase filings. This has had a major impact on the bottom line for many insurance entities.
While the number of hours spent on the road was down during 2020 and early 2021, the severity of claims is up. During this period, open roads, less police presence, and increased road rage incidents fostered conditions that resulted in more catastrophic damages.
Many states allow telematics usage and pay-per-mile policies for automobile insurance. These technologies provide a benefit to consumers, especially now that many workers are no longer commuting to an office. Incorporating telematics into programs helps insurance entities develop products that better fit the driving habits of consumers, today and post-pandemic.

State-specific bulletin updates

Several states issued bulletins and notices that clearly articulate pandemic-related regulatory updates. Here are some noteworthy changes:
Nevada – In June 2020, The Nevada Division of Insurance issued a notice that they would disapprove any new business policy filings that contain COVID-19/virus/pandemic exclusions.
California – As of April 2021, California insurance regulators are beginning to review commercial rate filings that were previously subject to rate freeze requirements, but no rate increase filings have been approved for any lines that California considers to be impacted by the pandemic as of September 2021. They are now considering allowing filings that include sub-limits to COVID-19 exposure.
New Mexico – Regulators at the New Mexico Department of Insurance issued a bulletin in December 2020 stating that at least until the end of the 2021 legislative session, a moratorium will be in place on any filings that include endorsements related to COVID-19/communicable disease/virus. The 2021 legislative session has ended; however, the moratorium remains and it’s unclear how long this position will remain in place.

Objection-based findings

Due to the volume of state filings the team at Perr&Knight handles annually, we have observed some key Department positions in states that have not formally communicated their position through bulletins/notices or other official DOI communication channels. These findings are based on recent interrogatories.

Vermont – The Vermont Department of Financial Regulation will approve pandemic-related exclusions if they are no more restrictive than approved Insurance Services Office (“ISO”) or American Association of Insurance Services (“AAIS”) language.
Idaho – Idaho continues to disapprove COVID-19/pandemic exclusions, sub-limits, or any other coverage caps related to the current pandemic. That said, the use of the word “current” indicates this Department position may not be permanent.
West Virginia – West Virginia Offices of the Insurance Commissioner are currently disapproving any new exclusions related to the COVID-19 pandemic.

The pandemic’s long tail

The end date of many of the above changes is unclear. In fact, many of these temporary state requirements may eventually become permanent. New and carryover legislation continues to add wrinkles to an already unclear landscape. If those making state filings are unaware of these shifts, they may end up receiving a barrage of interrogatories that can severely impact their programs’ speed-to-market.
Working with experienced actuarial and product design consultants like the experts at Perr&Knight can help insurance entities avoid these pandemic-related filing pitfalls. In addition to ongoing boots-on-the-ground experience with regulatory requirements in all 51 jurisdictions, we proactively monitor regulatory positions to make sure our clients are aware of any updates that affect their state filings. We also internally track interrogatories to determine which issues may provoke regulatory pushback, even if currently unpublished. This level of detailed insight can help insurance entities stay on top of filing requirement changes, which can ultimately lead to speedier approvals, even in times of uncertainty.

Let our actuarial and product design experts help you make filings even easier. Contact Perr&Knight today to start the conversation.

From Our Actuarial Experts: New Trends in Accident & Health

by Jennifer Choe

Here are some of the recent trends we’ve seen in accident & health coverage – and how insurance companies can respond more effectively to these changing times.

Younger consumers entering the market

The population of people purchasing insurance is shifting. This is a trend we have seen gain momentum over the previous few years with no sign of slowing down. More millennials (aged approximately 25-40) and Gen Z (age 24 and younger) consumers are buying insurance products. This shift in consumer base has a two-pronged effect: what products they seek, and how they are purchasing.
Older generations were content to work with a trusted insurance agent and prioritized a person-to-person relationship. Millennial and Gen Z consumers are more focused on instant information and instant gratification. Their digital-first consumption habits are causing insurance companies to re-evaluate how they offer products and are opening opportunities for Insurtech companies to fill the gap.
While Insurtech companies may have the technology covered, many have limited experience in the insurance space. Meanwhile, established insurance companies may have the knowledge of insurance product development but must partner with a technology provider to deliver products to consumers. Working with experienced insurance product development partners can help bridge the gap to make sure all products conform to regulatory standards.

The workforce is changing

As the gig economy continues going strong, more workers are tasked with securing coverage on their own. The federal insurance mandate is no longer in place, so consumers can be more creative with their health coverage. They want greater flexibility to choose plans and coverages that align with their needs and budget.
Some workers may not want or need full-blown health insurance plans, instead opting for more cost-effective coverages such as accident-only, major medical, critical illness, gap insurance coverage, or other supplemental plans.
Now is the time to revisit the scope of your medical products to determine if there are areas to offer products that align with today’s self-empowered purchaser. Insurance product development experts like Perr&Knight can provide insight into correct pricing and assist with rate and forms filings to bring these products to market as quickly as possible.

Short-term accident products

More and more insurance companies are offering lifestyle-related products that cover insureds under specific conditions for short periods of time. We’re seeing companies develop medical expense or accident indemnity products related to adventure sports, certain vacation activities, and equipment usage (ex. electric scooters).

Partner with insurance product development experts

Today’s trends unlock new possibilities for insurers to offer coverages that align with the times and evolving consumer expectations. However, everyone in the industry knows that product development, rate development, form filing, and approvals take time. Working with experienced actuaries and insurance product development specialists can accelerate your process and ensure you are not overlooking any critical elements that could slow your time to market.

Develop new products that match consumer expectations. Contact our insurance product development experts to start a conversation.

South Dakota Springing Forward with Innovation Waiver

by Ieisha James

Set to take effect on July 1, 2021, Senate Bill 55 will allow a waiver on some requirements for regulated access to South Dakota’s insurance market to allow insurers to test innovative insurance products or services.
The changes are primarily for property & casualty. Currently, the Department is not granting waivers for life insurance, health insurance, workers’ compensation insurance, or title insurance. The full list can be found in Senate Bill 55.
To participate in this market, interested parties need to submit an application to the Director of Insurance with information specific to the testing and provide the information detailed in the bill. A $2000 non-refundable fee applies to the application but, at the discretion of the director, may be reduced or removed if the applicant holds a license.
The term “innovation” and other key phrases are defined in the Senate Bill to avoid any vagueness.
Other states with similar enactments include Utah, with its “regulatory sandbox” program, which also allows for certain laws or regulations to be waived, and Arizona. Arizona’s House Bill 2277 is similar to South Dakota’s but is specific to the health care market and caters to individual and small group markets.
The concept of the sandbox is to allow new and small businesses the opportunity to test new and innovative ideas without all the heavily enforced regulation.
As we are seeing more states allow for modern initiatives such as the innovation waiver and regulatory sandbox, this is a pretty clear indication that this is a step in the right direction for the future of the insurance world. This provides some relief for start-ups and small businesses that took a hit during the pandemic by allowing trial and error to test insurance products or services without as much regulatory restraint.
Interested in finding out more about our services? Please contact Perr & Knight for guidance and assistance on all your insurance needs including but not limited to state filing submissions and actuarial services.

California Approves Vehicle History Rating for Personal Auto

by Brett Horoff

Companies now have a new tool to more accurately price personal auto insurance in California. The TransUnion Vehicle History Score powered by CARFAX® was approved by the California Department of Insurance (“CDI”) in a personal auto filing for Acceptance Insurance. This is exciting news for those of us that develop pricing for personal auto insurance in California. The filing, which was prepared and supported by Perr&Knight’s actuarial consultants, was approved in February of this year.
Due to California regulations, which limit the rating variables that can be used in pricing personal auto insurance, it’s not often that new methods for risk differentiation are allowed in California. Actually, innovation in pricing personal auto insurance does not happen in California, because new rating variables are, for the most part, not allowed under the regulations. So why did the CDI approve Vehicle History as a rating variable? Well, it is not technically a new rating variable. The regulations allow companies to use vehicle characteristics in pricing personal auto insurance in California. This includes vehicle make, model and model year along with other vehicle characteristics, such as automatic braking and lane departure warnings – all of which insurance companies currently consider when rating personal auto insurance in California. CARFAX’s Vehicle History data adds another layer of information about the vehicle. The traditional rating for vehicle characteristics treats all the vehicles from an auto manufacturer with the identical features (including make, model and model year) the same and does not reflect the actual condition of an individual vehicle. Once the vehicle leaves the car dealer’s lot, there are numerous factors that will have a bearing on the condition of the vehicle over its lifetime, and these factors will impact the damageability, safety and performance of the vehicle. By adding Vehicle History Score, based on the vehicle’s historical footprint, to the rating plan, insurers are able to offer more competitive rates, while managing their risk.
The Acceptance filing included information, which is publicly available, on the performance of the TransUnion Vehicle History Score. Below is a chart displaying this information. It includes the pure premium[1] relativities for the validation sample, which have been adjusted for correlations with other rating variables used in California. The chart displays the pure premium relativities in 10 groups of approximately the same size with the best performing group having a relativity of 0.60 and the worst performing group having a relativity of 1.30.

The above chart demonstrates a strong correlation between the pure premium relativity and the Vehicle History Score.
Insurers are often looking for ways to improve the accuracy of their personal auto rating plans. The TransUnion Vehicle History Score will move insurers in this direction by including more information on the characteristics of an insured’s vehicle. We expect other companies will soon be filing to adopt the TransUnion model for their personal auto program in California. We look forward to helping insurers with these filings.

About Perr&Knight

Perr&Knight is a leading provider of actuarial and state filing services to insurers in California. Our actuarial 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. Our experience includes expert testimony on rating filings and providing guidance to industry associations.

Contact us today for assistance with your California insurance products.

[1] Pure Premium = Capped Loss / Adjusted Exposures.