Compliance

The Value of Rating Manual Compliance Reviews

by Michael Covert

Developing a rating manual is not complicated, but creating a manual that is compliant–while simultaneously providing the flexibility that supports your company’s competitive needs–is an entirely different story. Too often we see insurance companies re-use the format, structure, and content of previously approved competitor rating manuals that are themselves riddled with errors, inconsistencies, and ambiguities. This can lead you to submit a manual that contains unclear or incomplete information, which can lead to questions and even filing disapprovals by state Departments of Insurance (“DOI”).
Is it worth the extra time and effort to review your rating manual for compliance before submission? What’s the true cost if you gloss over this step?
In this article, we will outline a number of ways subjecting your rate manual to review by experts in regulatory compliance services before submission can help protect your company’s reputation–and your bottom line.

The benefits of a rating manual compliance review

By neglecting to perform a compliance review before submitting your rating manual, you are setting yourself up for material losses of both time and money. Consider these main benefits of having a rating manual that is peer reviewed for compliance issues before you submit:

  • Achieve Quicker Speed to Market

With a more compliant rating manual, you will get fewer DOI interrogatories and help to prevent a longer timeline or even disapproval. Rating manuals that are developed in a clear and concise manner with a clear rate order of calculation, appropriate headers, edition dates and page numbers promote clarity. This is not only true for the DOIs, but also for your company’s IT department when it comes to programming and implementing new rates or rate changes in your system as quickly as possible.

  • Remove Inconsistencies and Ambiguities in Rating/Rules

When manuals are not clear, it can create the need for costly and time-consuming refilings or even incorrect policyholder rating. This could cause even more problems during a market conduct exam.

  • Consistency With Forms and Endorsements That Have Premium Impact

It is important that your rating manual has corresponding rules for any forms or endorsements that have an associated rate. The rule should describe the form/endorsement and how it is used to prevent any discrimination or inconsistent application across similar insureds. It is also important to provide clarity on other factors/rates that may or may not impact an endorsement premium, such as minimum premiums or other manual factors, discounts and surcharges. Lack of consistency and clear rules can muddy the process of rating a policy.

  • Minimize Cost of Filing Revisions

If your rating manual or rules are incorrect or inconsistent and the errors are material, it could warrant an entire nationwide refiling to correct it. Nationwide filings have an associated cost and timeline. While the initial nationwide filing is necessary to achieve approval, minimizing the need for future filing revisions could save your company time and money.

  • Help Reduce Market Conduct Exam Fines

During a market conduct exam, examiners typically rate policies and see if they get the same premium you have charged your insureds. If your manual is unclear, missing information or in error, it significantly increases the likelihood of large fines and the need for avoidable nationwide refilings.

Avoid these common mistakes

During our decades of providing expert insurance consulting services for all Property & Casualty lines of business across all jurisdictions, we have reviewed and developed hundreds of rating manuals. We have seen the good, the not-so-good, and some downright sloppy messes.
Here are some tips on how to avoid three of the most common costly and time-consuming errors.
Make sure you include rules for forms and endorsements. Many manuals are unclear on how to rate forms and endorsements to achieve the final premium. If you put these rules for forms in your rating manual, it helps prevent ambiguity and assists with programming by your IT department.
Eliminate ambiguity by adding a rate order of calculation. While many personal lines manuals (like automobile and homeowners) include a rate order of calculation, many commercial line manuals do not. If you do not include a rate order of calculation (which explains the logic on exactly how to rate a risk), at least create an internal version, or a simple Excel-based rating engine, to help your team understand the complete rating methodology for arriving at the final rate.
Be on the lookout for missing rules. When it comes to insurance ratemaking, no detail is too small. Pay close attention to things like rounding rules, minimum premium rules, and waiver/additional premium rules. If you are not clear, it can jeopardize the compliance of your manual.
Handling all regulatory compliance services in-house might seem like a good idea, but beware of the potential problems it could cause. Lacking deep experience while developing a new rating manual without comprehensive knowledge of state requirements could lead to costly time-consuming errors.  We recommend working with an insurance consulting expert who specializes in rate manual development and associated compliance issues. A review by a third-party with a fresh perspective and thorough knowledge of state DOI requirements will help expose errors and give you the opportunity to implement changes before your initial submission.
The bottom line when it comes to rating manuals: get it right the first time or risk paying the price.
Talk to the insurance consulting experts at Perr&Knight about a rating manual compliance review today.

Insurance Company Licensing: What to Expect

by Diane Karis

Whether you are submitting a primary application to license a new insurance company, seeking to expand coverage to additional states or adding a line of business so your company can write a new product, every insurance company’s goal is to obtain a speedy approval to begin binding policies as soon as possible.
All types of insurance company licensing share common characteristics. However, many companies proceed full-steam ahead without thoroughly understanding the challenges with licensing that can delay approvals and drain resources in the process.
Based on our extensive experience providing insurance company licensing support in all lines of business in every state, here are some of the top considerations to keep in mind as you submit your insurance license applications.

Expect slightly different requirements from each state.

About 80% of your licensing application information will be standard across the board. But the difference contained in the remaining 20% may jeopardize your approval. If you receive the same question from more than one state, it’s probably something you should address in all of your applications. All states grant the ability to withdraw your application without prejudice, so be proactive about amending your applications and re-submitting. If your company does not have the resources to review each individual application for state-specific requirements, consider working with a specialized consultant whose experience managing each state’s insurance company licensing process can limit unnecessary delays.

Details are critical.

Incomplete applications are a primary cause for delays, rejections or resubmission requests. Keep in mind that departments of insurance will not refund your filing fee once your check has been cashed.
Therefore, it’s smart to take the time to make sure that every question on your application is answered completely. If you don’t understand a question or a specific requirement, contact the state’s Department of Insurance directly and ask. Failure to submit complete, accurate information can cause your application to get kicked back, stalling your approval before the review process has even begun.

Consider your license’s capital requirements.

Your license approval may require your company to outlay a significant amount of additional capital. Your approval might stipulate that you meet certain capital requirements, such as increasing your capital and surplus or your statutory deposit. Consider your company’s process for informing your Board of Directors and the steps your financial department will need to take to ensure that you can access the requisite amount of funds.

Expedite approval of application fees with your finance department.

Your application is not considered complete unless it includes your full submission fees. Take your company’s accounting process into consideration, including the time between payment requisition and obtaining a check in hand. We’ve seen this process sidetrack our clients’ submissions, so our policy is to advance most fees when submitting applications on our clients’ behalf. This enables our clients to generate a single payment to us that covers every portion of their filing, including payment for our service.

Follow up with State Departments of Insurance.

Don’t just submit your application and wait. Though you might submit to multiple states at once, one of the challenges with licensing is that each state reviews applications on their own timetable. Follow up directly with each State Department of Insurance to make sure your application has been received and is getting the attention it deserves. If you lack the manpower for this level of involvement, partner with an insurance consulting services company that is experienced in following up with DOIs and has a tracking system in place.

Expect a mountain of paperwork and many, many man-hours.

Even with paperless submissions and electronic tools, licensing still requires copious amount of paperwork. California alone issues an 80 lb. box of paper.  Therefore, create efficiencies wherever possible. Submit forms via the UCAA electronic application, use digital tracking tools like StateFilings.com, or work with an insurance consulting services company who can manage your applications for you.

The Departments of Insurance make the rules. It pays to follow them.

Though there might be a rule or requirement that seems illogical to you, DOIs are not likely to change their processes anytime soon. Therefore, it’s in your best interest to supply the information they request on their timetable. Prepare to lose a few battles in the interest of winning the war.
Insurance company licensing is a lengthy and detail-intensive process that can take anywhere from six months to a few years. This is not an extensive list of challenges but by keeping the above in mind during your submissions, you can set achievable expectations and timetables.
If you have questions about insurance company licensing, call Perr&Knight at (888) 201-5123 x3 and we will discuss ways we can help streamline your licensing approvals.