Compliance

Testing Auto Insurance Rates for Racial Bias Without Race Data

by Joshua Davis

By Joshua Davis

Colorado requires personal auto insurers to govern and evaluate their pricing tools for racial bias, with the first compliance report due July 1, 2026. Most insurers do not collect race. Here is how evaluation is possible without it, and what separates a credible analysis from a misleading one.

Colorado Regulation 10-1-1

On October 15, 2025, Colorado’s amended Regulation 10-1-1 expanded to cover private passenger auto insurers. It applies a governance and risk-management framework to insurers that use external consumer data, algorithms, or predictive models in pricing, requiring them to evaluate those tools for bias and report to the Division of Insurance, with the first compliance report due July 1, 2026. A more detailed quantitative testing standard for auto is still being finalized. Colorado is not alone: New York’s Insurance Circular Letter No. 7 sets similar expectations, and other states are moving the same way.

That creates a practical problem: auto insurers do not ask applicants their race, nor should they. So how do you evaluate pricing for racial bias when you do not have anyone’s race?

Inferring what you don’t collect

The standard method for approximating race is Bayesian Improved First Name Surname Geocoding, or BIFSG. Names and neighborhoods carry probabilistic information about race and ethnicity, and that information is public, in U.S. Census data. A surname like Nguyen, a first name like Jorge, and the demographic makeup of a ZIP code each shift the odds. BIFSG combines all three into an estimated probability that a given policyholder belongs to each racial or ethnic group.

The output is a set of probabilities across racial and ethnic groups rather than a label on any individual, and over a book of business those probabilities let you compare premiums, losses, and loss ratios between groups and ask whether the pricing treats similar drivers differently. It builds on the same proxy approach the Consumer Financial Protection Bureau (CFPB) has used in fair-lending analysis and that state regulators have used in their own insurance studies. The method itself is well understood; producing results that hold up to a regulator or a court is a different matter, and it is where the actuarial judgment lives.

What rigorous testing has to handle

Three problems separate a credible test from a misleading one, and each can quietly flip the conclusion.

The first problem is the most familiar: a premium difference is not a disparity. A premium gap between groups is not discrimination unless it is larger than the difference in cost behind it. The District of Columbia’s 2024 DISB study illustrates the complexity when it studied auto premiums: minority drivers paid more premium, but their incurred losses ran higher still. The honest yardstick is the loss ratio, incurred losses measured against earned premium, and a credible test still has to separate a real premium gap from one that only reflects where people live or what they drive.

The second problem is subtler, and it starts with the fact that you never observe race at all, only estimate it, and the errors in that estimate are not random. Research on these methods finds that misclassification tracks socioeconomic status, with minorities in higher-income areas more often read as White and White residents in lower-income areas read as non-White. The Society of Actuaries’ 2024 review of imputation methods adds that they identify American Indian, Alaska Native, and multiracial people poorly, and that the Census suppresses counts for rare surnames in a way that falls hardest on smaller groups. A related problem is incomplete matching: when a policyholder’s surname does not appear in Census data, such as frequently happens with compound surnames common in Latino communities, the record cannot be assigned a race probability so it drops from the analysis. Random error would average out over a large book, but this demonstrates that records that drop are actually concentrated in the very groups the test exists to protect. It does not merely add noise, it bends the result, and an analysis that ignores it can produce a clean-looking number that is wrong exactly where it matters most.

The third problem is that the outcome depends on choices for which there is no agreed standard, so the same book can support different conclusions depending on who runs the test. Even the direction of the distortion is contested. Return to that misclassification: suppose Black drivers are in fact charged ten percent more than White drivers of the same risk. Because the imputation misreads some Black drivers as White and some White drivers as Black, each estimated group becomes a blend of the two, and the measured gap comes out smaller than the true ten percent. The disparity is real, but the proxy dilutes it, and a test taken at face value understates it.

That is the most common way imputation distorts the answer, but not the only one. Several fair-lending studies have found the reverse, that it can overstate disparate impact when the errors fall unevenly and invent gaps that were never there. The field genuinely disagrees about which way the bias runs, and the answer turns on how the proxy is built and used. That is not a reason to distrust the work; it is a reason to fix the methodology in advance, document it, and check whether the conclusion holds when the choices change.

Test for fairness pricing now

The July 1, 2026 Colorado compliance deadline for bias testing in personal auto insurance marks the beginning of documentation standards and annual reporting requirements.

Colorado’s regulation may signal where other jurisdictions are headed to ensure fairness in personal lines pricing. If your company uses external data, insurance credit scores, algorithms, or predictive models, it is worth assessing your program for potential discriminatory impacts across protected classes now.

Perr&Knight has the experience and expertise to provide this bias-testing analysis end to end: the data engineering and the testing that separates a real disparity from a cost-justified difference. Reach out to our consulting actuaries to provide the insights you need to ensure fair pricing in your personal lines insurance programs.

Society of Actuaries, Statistical Methods for Imputing Race and Ethnicity, April 2024. https://www.soa.org/globalassets/assets/files/resources/research-report/2024/stat-methods-imputing-race-ethnicity.pdf

DC Department of Insurance, Securities and Banking, Evaluating Unintentional Bias in Private Passenger Automobile Insurance, November 2024. https://disb.dc.gov

Wildfire Risk and Regulatory Compliance: A Strategic Guide for Property Insurers

by Bradley Jones

By Bradley Jones, Senior Actuarial Consultant Perr&Knight

Wildfire risk has moved from a regional concern to a central issue in property insurance ratemaking. Loss experience is changing, capacity is constrained in several western states, and a new wave of regulation is taking shape around how insurers assess and price wildfire exposure. Colorado’s House Bill 25-1182 is one of the clearest recent examples of where this regulatory trend is heading, and insurers writing property business in wildfire-exposed states should be preparing now. In this guide, we explore how carriers can navigate complex regulatory environments, like Colorado’s HB 25-1182, while leveraging advanced wildfire risk modeling to maintain rate adequacy.

Regulation and advances in wildfire risk modeling can work together to support rate adequacy for wildfire risk.

Key Trends: Rising Wildfire Risk and Insurance Pricing Impacts.

Wildfire activity has increased significantly over the past several decades, with long-term trends showing substantially greater acreage burned across much of the western United States. Additionally, the share of acreage burned at high severity is rising1. Taken together, the data points to a shift in the historical wildfire loss distribution – meaning the historical wildfire data increasingly understates prospective risk.

The market impact is most visible in states with significant wildland-urban interface (WUI). In Colorado, average homeowners insurance premiums have increased substantially over the past decade, placing the state among the most expensive in the country. The Colorado FAIR Plan, launched in April 2025, was established in direct response to availability and affordability pressures in the residential market. The FAIR Plan’s creation underscores the extent to which traditional ratemaking and underwriting approaches have struggled to keep pace with current risk. California faces similar pressure from projected increases in wildfire risk, as wildfire exposure continues to affect property insurance pricing and availability in high-risk regions. For example, California’s FAIR Plan, the state’s insurer of last resort, has seen a surge in new policies written and total written premiums for high-risk properties.

Colorado HB 25-1182: The Next Step in Regulation

Colorado’s HB 25-1182, Risk Model Use in Property Insurance Policies, takes effect July 1, 2026. The legislation is focused on transparency, accountability, and the role of mitigation in wildfire pricing for homeowners and other property insurance lines.

Under the act, any insurer that uses a wildfire risk model, catastrophe model, or scoring method to influence whether a policy is written and/or how much a policy costs, must:

  • Include in its rate filing a description of the model, its impact on rates, and an explanation of how it is used in underwriting decisions.
  • Incorporate property-level and community-level mitigation activities into the model or the underwriting process.
  • Post on the carrier’s public website the discounts, incentives, or adjustments available to policyholders who undertake mitigation efforts.
  • Provide an annual written notice to each policyholder of their wildfire risk score and an explanation of how that score and any mitigation efforts impacted the rate or premium.

The Colorado Division of Insurance (DOI) has pending Regulations 5-1-28 and 5-1-29, which, if adopted, would provide compliance guidance to insurance carriers for HB 25-1182.

Other States Are Moving in the Same Direction

California has already implemented a comprehensive set of reforms through its Sustainable Insurance Strategy, aimed at modernizing ratemaking, improving market availability, and addressing wildfire risk through approved use of wildfire models and the net cost of reinsurance in rate filings.

While California and Colorado have taken the most comprehensive regulatory actions to date, several other western states are moving in a similar direction. Montana has enacted insurer disclosure requirements and authorized mitigation discounts. Oregon has utility wildfire mitigation plan requirements in place, a measure that often serves as a precursor to broader insurance regulation.

Our expert actuarial consulting for property insurance expect the pace of state-level wildfire regulation to continue, particularly in states where catastrophe losses are putting pressure on rate adequacy and market availability.

The Role of Advanced Wildfire Risk Modeling

In many respects, these regulatory changes mirror broader shifts already taking place in catastrophe modeling and property ratemaking. Advances in wildfire risk modeling now allow insurers to move beyond traditional, territory-based approaches toward more granular, property-level risk assessment. These tools directly support transparency, mitigation-credits, and policyholder-notice requirements embedded in HB 25-1182.

Implementing wildfire scoring into a rating plan is much more than a modeling exercise. Carriers also need adequate filing support, mitigation credits, model governance, and consistency between underwriting rules and rating algorithms. Regulators are focused not only on predictive accuracy, but also on whether insurers can clearly explain how wildfire models affect individual policyholders.

How Perr&Knight Can Help

For insurers writing business in wildfire-exposed regions, the challenge is more than just catastrophe exposure. Colorado’s HB 25-1182 illustrates how carriers must now be prepared to support model-driven pricing decisions through filings, disclosures, mitigation programs, and policyholder communications.

Perr&Knight combines actuarial and product expertise, regulatory insight, and significant Colorado support for property rate filings and regulatory compliance to help insurers build wildfire pricing strategies that are actuarially sound, compliant with HB 25-1182, and adaptable to the next wave of state regulation.

Contact Perr&Knight today to discuss your wildfire pricing and compliance strategy.

1 Parks, S. A., Coop, J. D., & Davis, K. T. (2025). “Intensifying Fire Season Aridity Portends Ongoing Expansion of Severe Wildfire in Western US Forests.” Global Change Biology, 31, e70429. https://doi.org/10.1111/gcb.70429.

2 https://www.cfpnet.com/key-statistics-data/

PK1Cloud in the Age of AI: Why Digital Infrastructure Gets Stronger, Not Obsolete

by Tim Perr
Listen to a podcast-style summary of this blog post

Durable Digital Infrastructure for Intelligent Insurance Operations

Some AI proponents argue that artificial intelligence will replace software as a service (SaaS). Others claim it will replace knowledge workers altogether. These predictions have rattled stock markets and sent shares of software and consulting firms sharply lower. But are they true?

AI is evolving at an extraordinary pace. New models arrive continually and capabilities expand month by month. Vendors rise, compete, and reposition, often promising to do nearly everything. In our view, the reality is more nuanced.

In the noise, it is easy to focus on the models themselves. But models will commoditize and rotate quickly. The durable advantage will come from what those models plug into: the underlying digital infrastructure.

AI creates sustained value only when it runs inside secure, structured, well-governed operational systems. Without that foundation, AI remains stuck in pilot mode. It may be impressive in demonstrations but inconsistent in production and risky at scale.

PK1Cloud was built for that reality.

We did not set out to build a standalone AI tool. We built an integrated operating platform. PK1Cloud is a secure, workflow-driven environment that manages the full lifecycle of insurance product development, filing, compliance, and reporting. That foundation enables our clients to adopt the next phase of intelligent automation, AI, without sacrificing control, traceability, or regulatory defensibility.

What PK1Cloud Is

PK1Cloud is an integrated analytics, product design, and compliance platform developed by Perr&Knight. It organizes the structured work required to design insurance products, prepare regulatory filings, respond to regulators, implement products operationally, and and compliance obligations over time.

The platform is intentionally agnostic about who performs the work. Inputs can come from internal teams, third-party consultants including Perr&Knight experts, and increasingly AI-enabled tools and workflows. PK1Cloud does not privilege the source of expertise. Instead, it structures the work, enforces governance, and preserves institutional knowledge.

At its core, PK1Cloud provides a common data model, defined workflows, controlled documentation, secure communications, and integration capabilities that connect regulatory systems, core platforms, rating bureaus, and third-party data sources. Where appropriate and advantageous, it also can connect to AI providers. Historically fragmented processes become unified, traceable, and governed within a single ecosystem.

That ecosystem is what makes AI deployable.

Practical Applications Inside the Platform

Consider a new regulatory filing. The workflow is structured, but much of the work is repetitive. Teams review prior filings, compile exhibits, populate standard fields, and assemble supporting documentation. Experienced professionals perform these tasks carefully, yet they often recreate patterns that already exist.

AI trained on historical filing inputs can work inside PK1Cloud to pre-populate templates, retrieve previously approved language, generate required exhibits, and validate completeness. Instead of starting from a blank page, teams begin with a structured first draft grounded in precedent. Human professionals move from manual assembly to oversight, judgment, and strategic refinement.

Policy drafting is another example. Compliant language demands clarity, precision, and a deep familiarity with regulator expectations. AI trained on historical approvals, state-specific requirements, and prior objections can propose draft language aligned with regulatory norms. Because drafting occurs inside PK1Cloud, every revision is version-controlled, every change is attributable, and every approval is auditable. This allows organizations to move faster without sacrificing governance.

The same pattern applies during regulatory review. Department of Insurance objections often follow recognizable themes. AI operating inside the platform can classify an objection, retrieve comparable historical responses, propose a draft reply, and assemble supporting exhibits. The professional reviewing the response retains judgment and accountability, but the starting point is materially stronger. Institutional knowledge becomes embedded in the system rather than remaining trapped in individual inboxes or memories.

In each case, the value does not come from AI in isolation. It comes from AI operating inside structured infrastructure.

PK1Cloud as Durable Digital Infrastructure

AI models will change. Capabilities will expand. Vendors will come and go. Infrastructure is what endures.

PK1Cloud was designed as durable digital infrastructure for insurance operations. Its strength rests on four connected capabilities: secured structured data, orchestrated workflows, deep integrations, and documented decision making.

First, PK1Cloud centralizes operational data in a governed and secured common data model. Access is role-based and protected. Activity is logged. Version history is preserved. Encryption and security controls are embedded in the architecture. When AI operates within the platform, it does so under explicit permissions and full auditability. This protects sensitive information while enabling automation.

Second, PK1Cloud orchestrates client-specific workflows. Insurance operations move through defined stages, beginning with product design and continuing through filing and implementation. PK1Cloud maps those stages, enforces checkpoints, and captures outputs. AI can complete well-scoped tasks within those steps, escalate exceptions when necessary, and document results. Predictability is what makes automation safe.

Third, PK1Cloud is integration first. It connects to SERFF, client platforms where configured, rating bureaus, and external data providers. This connectivity allows AI-enabled workflows to retrieve required inputs, validate results, trigger actions, and update records with fewer handoffs. The platform becomes connective tissue across the enterprise and allows intelligence to move where it is needed while maintaining controls.

Finally, PK1Cloud manages and captures communications, approvals, and supporting documentation throughout the lifecycle of a project. Stakeholders are automatically notified when their review, approval, or input is required, ensuring that work progresses efficiently and transparently. In regulated industries, what was decided is only part of the story. How and why it was decided matters just as much. PK1Cloud records every action, whether performed by a person or generated by AI. This creates defensible transparency for regulators and durable governance for the enterprise.

As AI grows more capable, the need for this kind of infrastructure increases rather than decreases. AI raises the stakes on governance, security, and documentation.

Human Judgment Remains Central

The objective of AI inside PK1Cloud is not replacement. It is elevation.

AI can take on repetition, pattern recognition, first drafts, and continuous validation. Human professionals provide strategic interpretation, regulatory nuance, relationship management, and final accountability. Together, structured intelligence and experienced judgment create operations that are faster, more accurate, and more valuable to the enterprise.

Many organizations experimenting with AI struggle to move beyond pilots. The barrier is operationalization. AI must be deployed into day-to-day work with controls, repeatability, and accountability. Structured protected data, governed workflows, integrations, and documented communications are prerequisites for scaling AI safely.

PK1Cloud was built to provide that foundation.

As we begin rolling out AI-enabled workflows within PK1Cloud, we are doing so as an extension of durable digital infrastructure rather than as a stand-alone experiment. The future of insurance will not be defined by isolated AI tools. It will be defined by AI operating inside secure, integrated, workflow-driven ecosystems.

PK1Cloud is that ecosystem, designed to grow stronger as the intelligence layer evolves. Contact us to learn more.

Testing of Policy Admin System Output Is Essential for Compliance

by Scott Whitaker

For insurance carriers, program administrators, MGAs, and the like, the accuracy of policy administration systems (“PAS”) is crucial, not only for profitability and policyholder retention, but also for compliance. Every form, notice, and rate/premium that leaves a PAS must align with what was filed with the Department of Insurance (“DOI”).

Regulatory scrutiny doesn’t end when a filing is approved. Through market conduct exams, regulators also scrutinize whether what was issued and charged matches the forms, rates and rules that were filed. The NAIC Market Regulation Handbook outlines standards insurance companies must adhere to, including: “All forms, including policies, contracts, riders, amendments, endorsement forms and certificates are filed with the insurance department…” and “The rates charged for the policy coverage are in accordance with filed rates…”.

This provides examiners with a clear playbook to follow during a market conduct exam: compare issued forms and rates to approved filings. Here’s what our insurance compliance consulting experts want you to know about taking a proactive approach to market conduct exams.

Why Testing Matters

Discrepancies between approved and utilized materials are among the most frequent findings our insurance consulting team has seen in market conduct exams. Common pitfalls include:

  • Policies rated with unfiled factors or outdated tables
  • Use of non-approved consent or disclosure forms
  • Notices missing state-mandated language

When there is a gap between what is filed and issued, the consequences can be substantial, including policyholder restitution, interest, fines, mandated remediation, and reputational damage. The good news is: a disciplined program of regular testing closes the gap, facilitates compliance, and readies you for all types of market conduct activity.

Exempt From Filing Does Not Mean “Off The Hook”

Some lines of business are exempt from form and/or rate/rule filing requirements in certain states. That doesn’t mean state-specific coverage requirements don’t apply. Rather, it simply means the materials do not need to be filed with the DOI before they are issued. Insurers still carry the burden of making sure their materials comply with state requirements and they are still subject to regulatory scrutiny in the form of a market conduct exam.

When filing exemptions apply, rather than comparing issued forms and rates to approved filings, examiners will compare them to state insurance laws and regulations during the market conduct examination. If discrepancies are found, companies may still be subject to consequences.

How To Structure Regular Testing

Building a sustainable, repeatable testing program isn’t rocket science. In fact, during our decades of insurance consulting, our product design experts have identified these five key components that are essential to any testing program:

  • Baseline library Maintain a centralized location that retains all filed forms, rates and rules, with version control, for comparison.
  • Scenario-based testing Run end-to-end transactions (quote → bind → issue → bill → renew → cancel) on a sample of risks to capture all system outputs.
  • Premium calculation check Recalculate premiums for a cross-section of risks using filed rate manuals, and reconcile them to what was charged, reconciling to the penny.
  • Form generation and content validation Confirm the system attaches the correct forms, applies approved variability, and inserts all required disclosures.
  • Regular cadence Perform regular testing, prioritized based on risk factors that may include: high-volume products, active DOIs, known previous issues, product updates (e.g., recent filing activity).

Benefits of Proactive Testing

The benefits of proactive testing far outweigh the time and expense. In addition to preventing costly exam findings, proactive testing provides the following additional benefits:

  • Demonstrates disciplined compliance control and a strong governance framework that regulators respect
  • Improves speed-to-market by reducing last-minute compliance fixes and re-filing delays
  • Strengthens collaboration between compliance, actuarial, and IT teams, ensuring aligned implementation
  • Provides executive leadership with confidence that compliance risk is proactively managed
  • Builds trust with regulators and policyholders by showing transparency and consistency
  • Protects brand reputation through accurate, compliant policy issuance at every stage of the product lifecycle

How Testing Supports Statistical Data Reporting

Accurate PAS workflows and outputs do more than just ensure filed-to-issued compliance. They are also the foundation of statistical data reporting compliance with regulators and statistical agents. Regular testing helps:

Premium & exposure accuracy

Confirm that premiums generated align with risk classifications, coverages and filed rates for each policy transaction to prevent misreporting of earned/written premium and exposures.

Form and rating component reporting

Ensure the data within policy forms and rating component details are accurately captured and flow downstream to the statistical reporting sources and reports.

Policy and claims linking

Validate that claim and policy data are linked at the policy, risk classification and coverage level and can be traced back to filed policy statistical data, supporting actuarial reviews of statistical submissions.

Regulator trust

Reduce the risk of DOI inquiries, costly resubmissions and data quality penalties, or corrective action associated with inaccurate data capture.

By integrating output testing with data reporting, insurers create a closed loop: filed forms and rates drive system output, which in turn drives compliant statistical submissions.

Insurance Consulting Experts Can Help

Partnering with credentialed, experienced insurance compliance consulting professionals like Perr&Knight can help you get ahead of any market conduct exams your company might face. Our product design experts have experience with regulatory requirements in all jurisdictions and can provide guidance and support to help design or evaluate your testing program.

Contact the team at Perr&Knight today to discuss your policy administration testing.

A Smoother Path to Reporting Legal/Regulatory Actions Against Insurance Agents and Agencies

by DJ Lopez

Reporting legal or regulatory actions against insurance agents or agencies is a critical but often misunderstood part of maintaining compliance in the insurance industry. Insurance licensing requirements are clear: any type of action against an individual agent or agency must be reported.

Actions against an insurance agent or agency are not uncommon, but failure to report can result in the accumulation of fines and can delay approvals of new or renewal licensing applications.

Though not complicated, reporting actions can be time-consuming, especially when it involves multiple jurisdictions.

Why Does Reporting of Actions Matter?

The insurance industry is based on trust, so integrity and transparency are crucial. Here are some of the reasons reporting is essential:

Ensures Legal and Regulatory Compliance

Insurance agents are often required by law to report any administrative actions taken against them (e.g., fines, license suspensions) to their domicile DOI. Failure to report an action may result in further penalties, including license suspension or revocation.

Promotes Uniformity in Licensing

All DOIs participate in the National Association of Insurance Commissioners (“NAIC”) and the National Insurance Producer Registry (“NIPR”). These entities promote uniformity in the licensing process through reporting transparency in all jurisdictions. This prevents agents from “license shopping” or hiding past infractions by moving from one jurisdiction to another.

Builds Trust with Consumers

Insurers and customers rely on agents and agencies to act in their best interests. Reporting actions is a means of helping regulators to monitor an agents conduct. Knowing that regulators are aware of actions against agents or agencies, provides consumers with peace of mind that they are being protected from fraudulent or unethical behavior.

Upholds Professional Integrity

Agents who are quick to report actions show that they understand the importance of protecting their reputations through honesty and transparency. Reporting demonstrates their commitment to high ethical and professional standards, even if they have found themselves on the wrong side of a disciplinary action. Reporting actions in a timely manner demonstrates their willingness to face the consequences – two desirable characteristics for agents.

Demonstrates Ethics of Agency Officers

Unlike agents, officers or director-level staff of an insurance agency are held to slightly more stringent standards. In these cases, actions issued against individual officers also become attached to the agency itself. For insurance professionals occupying these positions, reporting is critical as failure to report – even actions that happened well in the past – could negatively impact the agency’s reputation.

Initial Licensing vs. Renewals: Differences in Reporting

Keep in mind that questions slightly differ among the initial licensing application versus the renewal application. For example, an initial application asks, “Has anything ever happened?…” versus a renewal application, which asks, “Has anything happened since the last renewal that you did not already report?” This is why staying on top of reporting is essential.

Avoid Compounding Effects

An administrative action in one state might trigger a similar action in another state where the agent is also licensed. Since many agents are licensed in multiple jurisdictions, being proactive about reporting in all areas will reduce quickly compounding negative consequences.

Illustrative example:

An agent received a jaywalking ticket while traveling to another state. The agent didn’t pay the ticket, which led to a warrant for their arrest and a misdemeanor on their record. The agent also forgot to report the ticket to their resident licensing state. Upon discovering the misdemeanor, the state issued an action for the agent’s failure to report. Then, other states issued their own actions for the same reason – the initial failure to report created a domino effect. This small event turned into a significant administrative and financial burden simply because it wasn’t handled quickly.

This kind of scenario, while seemingly small, highlights the importance of reporting even minor infractions to avoid escalating issues or delays with insurance licensing renewals. It’s better to report as timely as possible, so regulatory authorities are notified proactively rather than discovering an action after the fact.

Steps to Stay Compliant

Most actions do not result in a license cancellation/revocation, but failure to report causes delays. When reporting actions, here are some valuable tips to keep in mind.

  • Read the questions carefully and answer honestly. DOIs are primarily concerned with offenses involving dishonesty, breach of trust, or financial misconduct, such as fraud, embezzlement, and theft. An attestation question might look like this: Have you ever been convicted of a misdemeanor, had a judgment withheld or deferred, or are you currently charged with committing a misdemeanor? These could impact a license application, but more often, incorrectly answering “No” to an attestation question could delay your application by months. For entities, similar questions apply to the agency’s directors and officers, and the same principles apply to individual licensees at the director level.
  • Go as far back as you can. The actions we see often are usually minor, often stemming from youthful mistakes (e.g., DUIs, petty theft, bar fights).  Most actions usually have no statutory timeline, which means agents will be expected to report infractions from their “younger years,” including college and the time before they were licensed as insurance agents. It should be noted that juvenile records are excluded from the reporting requirements.
  • Report promptly. Reduce the risk of oversight by reporting the action in a prompt fashion right after it happens. Don’t wait until your license is up for renewal to report. DOIs generally allow 30 days to report an action to the NIPR Attachment Warehouse. Working with insurance licensing professionals like Perr&Knight can offload the detail-intensive task of managing agent and agency license renewals to ensure nothing slips through the cracks. We have decades of experience navigating the NAIC and NIPR systems. We can also directly reach out to DOIs and correspond with the examiners to report actions as needed.
  • Consult with insurance compliance consultants. Experts like the team at Perr&Knight can help answer questions about reporting actions. Though not legal advisors, our experience reporting actions in all U.S. jurisdictions can help smooth the process, especially if an agent is licensed in multiple states.

Most actions are minor but create unnecessary administrative headaches. Reporting administrative actions is a necessary part of compliant insurance operations. However, keeping these strategies in mind can help avoid delays in licensing or renewals so you can get on with business.

Contact Perr&Knight today to discuss your insurance licensing support needs.

Streamlining Compliance: Managing Bureau Changes through Automation

by Perr&Knight

Staying updated with bureau changes is crucial for insurance companies. Non-compliance carries significant risk of adverse consequences, including legal issues and financial penalties.

However, for insurance companies with multiple lines of business across many jurisdictions, manually monitoring bureaus like ISO and NCCI can eat up valuable time and present many opportunities to miss critical filing updates.

As seasoned providers of insurance compliance services, we have spent decades developing greater efficiencies in monitoring bureau updates for our clients. A key element of our process is Bureau Monitor, a subscription service tool contained within our StateFilings.com solution.

Bureau Monitor streamlines the bureau update process by centralizing circulars, keeping clients informed, and providing recommended filing actions and statuses for all circulars. Features include tracking bureau filing numbers, effective dates, and providing links to circulars.

Here are insights from our insurance compliance services team on how to use time-saving automation tools like Bureau Monitor to reduce the risk of slipping into non-compliance.

Volume and Frequency of Update

There is a variation in the frequency of updates from different bureaus, such as ISO’s frequent updates, versus less frequent ones from other bureaus. This constant stream of proposed changes and new regulations can be overwhelming for compliance departments to track. All these changes increase the risk of missing updates from less active bureaus. The compliance team at Perr&Knight reviews each bureau site frequently to ensure that new circulars/bulletins are documented and made available on Bureau Monitor, regardless of the frequency.

Accurate Information

Responding to new compliance requirements involves lots of moving parts – components like state laws, bureau filing authority, and company’s authorization. These are all unique to each company and line of business. There are, at times, significant complexities involved in understanding and complying with different state filing laws. Perr&Knight’s team updates Bureau Monitor with relevant information to ensure users are seeing the most accurate and relevant requirements.

Avoiding Compliance Gaps

Updates to policy writing and rating systems must be made in a timely manner to avoid compliance gaps. Falling behind on bureau updates can lead to chaos within regulatory compliance departments. The team at Perr&Knight monitors regulatory changes (proposed and enacted) and updates the system accordingly. Users see only the updates relevant to their lines of business.

Compliance and state filings departments are alerted to required actions regarding adoption/non-adoption, delay filings, documentation, and more. Because Bureau Monitor is part of StateFilings.com, users can also connect bureau updates to specific SERFF tracking numbers once the update is filed.

Benefits of Automation

Automating bureau monitoring has been a game-changer for compliance departments. Here are some of the ways automation through Bureau Monitor helps:

  • Saves time – Bureau Monitor relieves the administrative burdens and saves time for compliance departments, allowing them to focus on bigger-picture strategic issues.
  • Establishes a clear process – Managing bureau updates requires a clear, documented process. Bureau Monitor can help facilitate workflows and establish best practices.
  • Improves accuracy – Automation reduces the risks associated with relying on ad hoc systems like spreadsheets and emails to track bureau updates.
  • Streamlines communication – The ability to add notes enables users to include comments that remain in a single repository, not buried in old emails.
  • Provides end-to-end tracking – Users can see the entire life cycle of bureau updates, from proposed changes through to filing status (as part of StateFilings.com).
  • Increases decision-making efficiency – Centralized and automated services like Bureau Monitor improve decision-making efficiency by providing all necessary information in one place. All stakeholders can access the information they need to avoid missed deadlines and compliance issues.
  • Enhances internal processes – Centralizing bureau updates provides useful information to help companies manage policy writing and rating system changes.
  • Delivers key information – Customizable dashboard views and reports let users sort and view specifics on filing actions, jurisdictions, effective dates, etc.

Centralized Record-Keeping

Consolidating bureau updates on a single platform enables company stakeholders and compliance department staff to rely on a single source of truth for the entire life cycle of an update, from proposed change through to filing and implementation status. This detailed compilation of information saves significant time collecting information in the event of an internal or Department of Insurance inquiry or exam.

Efficiently managing bureau updates is essential for every insurance company – but the process can be time-consuming. Automation tools like Bureau Monitor help compliance departments get even further ahead by monitoring, tracking, and storing updated information in a single repository that saves time and reduces the risk of compliance violations.

Contact the experts at Perr&Knight to learn more about Bureau Monitor and how our insurance compliance services can further support activities related to your bureau updates.

Five Benefits of an Expert Review of Your Rate/Form Filings

by Brett Horoff

Have you had a filing disapproved in Florida or New York?

Are you receiving multiple objection letters on your California filing identifying items that do not comply with state requirements?

Do you struggle with providing the required actuarial support in Washington?

You are not alone.

It is incredibly difficult for companies to keep up with each state’s requirements. Most companies do not submit enough filings or have the consistent communication with the Departments of Insurance (“DOI”s) to gain the expertise needed to handle certain states without consulting an expert.

If you work for a large insurance company, you may have a pre-filing meeting with the DOI to discuss your filing. This allows you to obtain some feedback on potential concerns that the DOI may have on the proposed rates and forms, but this is not a comprehensive review, and you may often run into DOI objections during the filing review process that could have been avoided with additional insight on the state’s requirements. Adding an expert review of filings prepared by your company is a “must have” to achieve timely approvals in key states.

Below we provide greater details on the benefits achieved through an expert review of your filings by an actuarial and insurance consulting firm with extensive state filings experience.

Benefit #1: Increase the likelihood of proposed rates and forms being approved

It is not unusual for companies to receive filing objections from state DOIs that request changes to the company’s proposed rates and forms. If a company does not have a full understanding of the options that will satisfy the DOI’s concerns, it may make undesired revisions to the product in response to an objection.

Our actuarial consultants worked recently on a management liability filing in California that used range for rates and rating factor. The DOI had concerns about the subjectivity of the ranges, which may lead a company to eliminate the ranges and use specific rates/factors. Our actuarial consultants were able to assist the company in providing a solution that kept the ranges and was acceptable to the California DOI.

Whether it is to ensure a company obtains its proposed rate change or to recommend changes to the company’s rating plan to achieve the company’s goals, a review by an actuarial consultant and an insurance product development expert can have a positive impact on a company’s bottom line.

Benefit #2: Ensure filing complies with DOI requirements

While each state has laws, often there are DOI positions and interpretations, which are not published, and companies learn about them after the filing and during the DOI’s review. Not knowing this type of information could negatively impact a company’s filing. For example, New York disapproves filings without the opportunity for the company to respond when filings are substantially out of compliance with state requirements. During 2021, the New York Department of Financial Services disapproved 19% of submitted filings and another 8% of filings were withdrawn. New York is not the only state that takes this approach.

The Florida Office of Insurance Regulation is often known for disapproving commercial lines form filings that are not compliant with the state requirements. For auto policies (both personal and commercial), New York has unique coverage requirements that must be reflected on the declarations page. Even if a company uses a bureau template, a state-specific version is generally needed to avoid a series of objections pertaining to the format and contents of the declarations page.

Having an expert review from an actuarial and insurance consulting firm with regulatory compliance services can help companies avoid the dreaded disapproval letter.

Benefit #3: Identify potential DOI objections

While obtaining filing approvals without any DOI objections is unlikely in some states, the ability to identify potential objections will allow companies to address concerns prior to submitting the filing. Not only does this reduce the number of objections received during the state filing review process, but it also provides companies the opportunity to address items that may lack the appropriate support or may raise additional questions from the DOI.

By having an expert review, the company can identify potential objections and either address them upfront or be prepared for them. Many companies are surprised when they receive objections on California filings questioning items that were previously approved in a prior filing and are not being revised in the current filing. For rate and rule filings, the California DOI requires a complete manual with each filing and will review the entire manual – not just the proposed changes.

Benefit #4: Improve relationship with the DOIs

Although DOIs will review each filing independently, the DOIs will remember companies that consistently submit filings not in compliance or lack appropriate support. For frequent violators, the DOIs may outright disapprove the filing without sending an objection letter. The DOIs share information within its various operational areas as well as with other DOIs. This information can often lead to a market conduct inquiry, especially if the concern is related to noncompliance or may have an impact on the consumer. When a company submits a complete and compliant filing, the return on investment may lead to a quicker review by the DOI.

With many of the DOIs experiencing staffing shortages, any assistance companies provide to reduce the time that the DOIs spend on reviewing filings will be appreciated by the state.

Benefit #5: Reduce the time to approval

When companies are submitting rate filings, the premium impact of the changes could be in the millions, so reducing the time to approval could have a significant impact on the company’s bottom line. In 2022, the average time to approval for California on a rate filing is 337 days (median: 264 days) and a new program filing is 207 days (median: 209 days).

When companies have their filings reviewed by actuarial consultants and state filings experts, it allows submission of a more compliant filing with the proper supporting information and may result in the filing being approved quicker.  Another benefit of engaging these experts is that they could help companies navigate filings through the DOI in the most efficient manner possible.

Need an expert review of your filings?

Perr&Knight is a leading provider of actuarial, product design and state filing services to insurers. Our actuarial consultants, product design consultants and state filings experts are very familiar with all the filing requirements in each state – especially the states where insurers struggle the most.

Please contact us if you need an expert filing review.

P&C Carriers: A Strategy for Entering the A&H Market

by Susan Cornett

By Susan Cornett, FMLI, AIRC, CFE

P&C insurance carriers recognize the opportunity to expand product lines and increase revenue by expanding into Accident & Health products. However, the differences between P&C and A&H product development are significant and what applies to P&C may not apply to A&H from a regulatory standpoint. Understanding those differences will allow P&C carriers to enter the A&H market with faster speed-to-market along with high-quality products.

During decades of providing insurance product development and actuarial support for insurance companies across the US, Perr&Knight has zeroed in on a low-risk A&H entry product for P&C: blanket accident policies.

Why develop a blanket accident policy?

Commercial entities, schools, universities, and other organizations often need supplemental blanket A&H policies to fill gaps in medical coverage to further support their staff or students. With fewer mandated benefits, these policies are the perfect starting place for P&C companies looking to break into the A&H market and provide additional coverage options to existing clients. Blanket Accident policies also fit nicely with General Liability policies and allow brokers/agents to offer comprehensive insurance protection from a single carrier.

Differences between P&C and A&H product development

Established P&C carriers may think they have the requisite experience to develop A&H coverages. However, a few significant differences between these two types of insurance product development are worth noting.

  • Rate support: Rate support requirements in A&H are different than P&C, usually requiring an actuarial memorandum describing the benefit in the rate structure as well as a signed certification attesting that the rates are reasonable in relation to benefits.
  • Forms and rates standards: On the P&C side, rates tend to receive more scrutiny. On the A&H side, regulators examine policy forms more closely. Though some states are outliers, we find this is a reliable trend.
  • Bureau forms: Many P&C carriers adopt ISO or other bureau forms as part of their P&C portfolio. For most lines, A&H doesn’t have this option. Most insurers rely upon proprietary forms.
  • Statistical reporting: Data reporting is important on the P&C side. But except for a few lines of business, statistical reporting requirements aren’t widespread on the A&H side. Besides ad hoc data calls, most supplemental A&H coverages don’t require such detailed stat reporting.
  • Rate certifications: Although a few states require certification of the rates or rate filings on the P&C side, some states require carriers to attest to their ability to meet target loss ratios for A&H lines.
  • Variable benefits: A&H policies typically rely on the use of variable language to allow inclusion or exclusion of benefits, terms and conditions. It’s not unusual for a blanket A&H policy to be 50+ pages because the benefits are included in the policy and not attached as optional endorsements. From an implementation perspective, this means programming one form with many options instead of 75 forms with no options — another way these policies diverge from P&C.
  • Verbiage differences: Terms and definitions vary between A&H and P&C. For example, P&C uses the phrase “loss costs” while A&H calls these “claim costs”. Unfamiliarity with terms could lead to filing errors.

Commonly asked questions

P&C carriers eager to enter A&H should know a few basic things before moving forward. Here are the most commonly asked questions from P&C insurers.

“Does our license cover A&H?” Short answer, maybe. P&C carriers may already have the ability to write A&H lines of business depending on what is included in their Certificate of Authority. Licensing requirements vary by state. Our licensing experts can help determine whether anything additional is needed. There are important differences in insurance product development and approvals, even for supplemental health policies, so P&C carriers should proceed with caution even if currently licensed to write the business.

“Can we offer blanket A&H on a non-admitted basis?” Simply, no. In the world of A&H, the concept of surplus lines is virtually non-existent. Companies may develop an A&H program thinking it will be available under surplus coverage guidelines, but state export lists rarely include any A&H coverage. The consequences for non-compliance can be steep and may jeopardize a company’s good reputation with state regulators.

“Can we ‘me too’ our A&H policy development?” Unlike P&C, “me too”-ing rating information from competitors’ existing programs is generally not acceptable. Different requirements for rate filing and support are a prime example of a P&C process that has no transferable correlation to A&H.

Start with blanket accident, then expand

After developing a blanket accident policy, companies can easily expand into other supplemental health lines. After getting your feet wet with blanket accident, product lines such as hospital indemnity, critical illness, disability income insurance, and gap medical generally follow the same product development process.

Work with experts

Developing a blanket accident policy may seem straightforward on the surface, but there are lots of opportunities to fall into little-known traps. Partnering with experienced insurance product development partners like Perr&Knight can save P&C carriers from wasting time and money on mistakes.

With our deep experience providing insurance product development and actuarial support services for carriers across both P&C and A&H lines, our professionals act as the “decoder ring” between the two. Working with knowledgeable professionals helps insurance companies step into a new world with greater confidence and ease.

Ready to test the A&H waters with a blanket accident policy? Contact Perr&Knight for help.

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.

  1. 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.

  1. 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.

  1. 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.