How to Get Commercial Lines Rates Approved in Highly Regulated States (CA, FL, NY, TX, WA)

For insurance companies with nationwide products, getting your commercial lines rates approved in heavily regulated states can lead to frustration, confusion and wasted resources. There’s a reason certain states have earned their reputation for being difficult: their requirements are complex and thorough.
This article outlines the most important steps you should take when tackling submissions in highly regulated states to obtain speedy approvals–so you can get on with your business.

Know Your Filing Requirements

Each state has specific requirements that must accompany your filing. Understanding what is and is not required for each state and line of business is key to a timely approval. Carefully examine state filing requirements like return on equity exhibits (which support expenses and profit load), actuarial memorandums, making sure any forms with rate impact have corresponding rates in your manual, understanding the allowable rating flexibilities if any, and how they differ by state, etc. For example, in Florida, many commercial lines rate filings are considered “informational” and don’t require support to be filed, just maintained internally.

Actuarial Transmittals

California, Florida, New York, and Texas require specific transmittals. Every state Department of Insurance expects the filer to fully understand all requirements before submission. Some common transmittals for these states are the California Prior Approval Rate Applications, New York’s Rate Filing Sequence Checklist, the Texas Exhibit L and related actuarial transmittals, and the Florida Rate Level Indications Workbook, Actuarial Memorandum and Actuarial Opinion requirements (only for lines of business where Florida filings are not informational).
Filling out these exhibits is generally very difficult for someone without extensive filing experience.  Completing these documents incorrectly can lead to numerous Department questions or disapproval. In worst case scenarios, poor or incomplete submissions can upset Department staff, possibly making it more difficult to receive approval in the future. 

Actuarial Support Required

The actuarial support required for your filing depends on whether your proposed program is new or a revision. If support is not supplied in the way the specific Department requires, your filing will likely be disapproved and have to be resubmitted. This can add to cost, slow down your timeline and make it more difficult to get approval after resubmission.
Detailed actuarial support/data is generally required for filing revisions with rate level impact. For new programs, detailed competitor support using approved filings in the specific state is often required. Using filings from other states as competitive support will usually not be acceptable.

Responding to Department Objections

When it comes to state filings, it’s best to know your state requirements inside and out, since it is likely you will receive multiple filing questions before approval. Each Department asks different types of questions and each Department is looking for specific responses based on the type of submission. Don’t back yourself into a corner by responding incorrectly or supplying too little (or too much) information during the interrogatory process.
Departments of Insurance are savvy. Reviewing state filings is what they do, day in and day out. The challenge you face is that Departments have very specific requirements and it is difficult to determine the specific details necessary to satisfy their unique stipulations. This is where working with professional insurance support service providers can be a huge help.
When managing filings in highly regulated states, insurance industry experience is invaluable. Many of the clients we help involve situations where the company has submitted a filing incorrectly in one of the above states and requires assistance sorting out the resulting obstacles. Usually, the company’s support data was insufficient or their actuarial transmittals were filled out incorrectly. Completing your filing incorrectly without realizing it ultimately complicates things as you may not know which aspect of your filing needs to be adjusted. It then becomes a difficult puzzle to solve which variables require correction. Each of these steps impedes the process, burning through time and resources.
Outsourcing to insurance experts who have deep experience in the most difficult states, as well as relationships with regulators at the Department of Insurance, streamlines the process and saves you from a costly and lengthy correction and resubmission process. Experts make sure you go through the process methodically, checking and double checking the necessary support before you submit. This will save time and money on the back end, helping to achieve speed to market.

Expert Tips to Speed Up State Filings Approvals

by Courtney Hughes, JD, CPCU, Manager, Regulatory Compliance & Patrick Light, Principal and Director of Enterprise Software Solutions
There are many reasons to try to expedite your state filings approvals. Whether you are changing rates, launching a new product, or updating a product to meet your customer’s needs, speed is critical in today’s immensely competitive insurance market.
Obtaining approvals quickly is a huge competitive advantage. Bureau filings, in particular, can be especially difficult to keep up with, because new circulars and info come out every day. For ISO, AAIS or other bureau-based products, staying on top of the frequently-changing requirements gives you a significant edge over companies that are lagging behind.  For independent products, it’s all about getting your new product or coverage to market before your competitors.
Speedy approvals can help lighten your workload by ending that process sooner, allowing you to focus your attention on the next big project. Here is a list of useful tips that can help you avoid the stumbling blocks that slow down state filings approvals.

Get prepared before submitting.

Thoroughly research the filing requirements for the states in which you plan to file well in advance of your target filing date. Understanding and complying with these requirements up front avoids the issue of states coming back to you requesting that you correct avoidable procedural issues, such as providing the wrong edition of a required transmittal document. Issues like this can delay your approval by weeks.
You can obtain current information from state department of insurance (DOI) websites, SERFF or your insurance consulting services partner. For bureau adoption filings, make sure you have collected and organized all the information from the circulars before you begin so you can provide the states with all necessary pieces of information, like the ircular number, bureau filing number and state filing number.

Submit compliant, complete, and consistent material,

Reviewers can’t approve filings that are not in compliance with their state laws. Every time they kick your filing back with questions, it slows down the time to approval. Make sure that your product development staff and actuaries, or your insurance consulting services partner, confirm that the forms, rates, and rules you plan to submit are in line with state requirements. Not all objections or issues can be prevented, but where possible, anticipate the state’s requirements for your product and try to answer any expected questions in the explanatory memorandum you submit with your filing.
Completed material also goes a long way in speeding up approvals. For example, some states require a form usage rule in your manual for each form submitted. By providing the form usage rules in your manual at submission, you avoid the objection coming in and having to scramble to create the form usage rules and get internal stakeholder approval before the deadline.
Finally, consistency is important because it makes your filing easier to review so it is more likely to be approved quickly. After the forms, rates, rules, and supporting documentation have been developed, take some time to review them carefully. Make sure, for example, that your program name is consistent between the documents, or that your explanatory memo is not referring to a form you decided not to file.

Submit your objection responses ASAP, but always before the due date.

DOIs like to speed up their workflows too, so give them everything they need to close the filing as soon as it becomes available. If you received an objection with a due date in a week, submitting your response by that deadline is good, but submitting it within two days is even better. And always be sure to respond to the state by the due date they set. If you know you will not be able to respond by that due date, contact the DOI analyst and request an extension. If you miss a due date, there’s a good chance your filing will be disapproved or rejected, putting you back to square one.

Have a plan for objection responses and status checks.

Staying on top of filings once they have been submitted is challenging because there are lots of moving pieces to manage. You need to keep track of DOI questions and their due dates and ensure that you are consulting the right internal teams for answers. You will also want to keep track of when filings have been submitted so you know when it is time to check in with the DOI to see how their review is progressing. Before you submit, you should have a plan in place for how you will keep all of the outstanding filings organized. 

Use tracking software designed for insurance.

When you have a clear insurance software tracking system in place instead of a hodgepodge of spreadsheets, databases, SharePoint, and/or emails, you can easily keep track of DOI questions and due dates. The more seamlessly you can manage the questions the reviewer throws at you, the sooner you can get the ball back into their court.

Avoid double work.

Review your internal systems to make sure they’re not slowing you down. If you use an ad hoc tracking process, you are likely doubling up on data entry, entering the information once in SERFF and again in your company’s tracking system. This can cause delays in your ability to respond to reviewer questions or use the time of valuable internal resources who could be focused on the next project. Evaluate your company’s state filings process, looking for areas you can streamline. Working with an outside insurance consulting partner can help reveal inefficiencies that you might overlook.
There are never any guarantees with state filings approvals. But preparation, planning, and organization can mean the difference between a product that is launched on time, and one that gets lost in a maze of questions and confusion.

If you have questions about strategies to speed your company’s state filings approvals, our team of insurance experts can help.

7 Pitfalls to Avoid in Providing Accident & Health Product Rate Filing Support

Going through the process of a nationwide rate filing, or even filing in just a handful of states, can be a complex and lengthy process. Addressing the specific requirements of all 50 states plus DC, and provinces can get overwhelming, especially with new product filings. Each state has different filings requirements, and sometimes the differences between states are dramatic. No matter what, your end goal is profoundly important: to avoid objections, disapprovals, or the need to withdraw your filing. Ensuring that things are done properly from the get-go will make the process more streamlined in the long run.
In our decades of providing insurance state filings service for companies in all jurisdictions that write all lines of business, we’ve seen many of the common mistakes that result in lost time and wasted resources. These pitfalls can be avoided–if you know what to look for and how to take action.

Pitfall: Not knowing all state regulations and statutes

This is the single most common trap we see in state filings. Understanding the specific requirements for each state is a complicated and cumbersome process. But there’s more to it. In order to make sure your filings proceed smoothly, you also need to be aware of what we call “drawer regulations”–the unwritten rules reviewers may follow but aren’t written into the state statute. Knowing the written as well as unwritten requirements can reduce the chance of your filing being kicked back. Working with a knowledgeable actuary or state filings unit can help significantly when it comes to knowing these regulations.

Pitfall: Not knowing each state’s minimum permissible loss ratio requirements

Each state has different minimum permissible loss ratio requirements, which in turn affect rates. First and foremost, these loss ratios vary by group versus individual coverage. Individual minimum permissible loss ratio requirements are often based on NAIC individual loss ratio guidelines, however, not all states follow this guideline. Furthermore, some states extend the NAIC guideline to group coverage, while other states have their own requirements. Loss ratios can also vary by type of coverage and renewability clause, as well as invoking low or high average premium adjustments. Your rates will be different in those states based on those specific regulations. Be sure to equip yourself with these important pieces of information prior to filing to make sure you provide for the correct loss ratio for the type of policy you’re writing in a particular state.

Pitfall: Not knowing which supporting documents should accompany your filing

As we have stated before, it’s smart to file exactly the supporting documents that your state requires–and nothing more. Some states require that you submit transmittals, checklists, rating examples, underwriting guidelines and/or experience rating guidelines. Some states also have specific requirements for components that need to be included in the Actuarial Memorandum. It is also recommended to restrict the information you provide to only what is necessary to reduce the number of objections and questions; otherwise, you risk opening Pandora’s box.

Pitfall: Not taking into account time it takes to address objections

While all state filings may receive objections, limiting your number of objections not only preserves your company’s reputation with the reviewer, it reduces the amount of time required to respond, thus keeping you on schedule. In certain states like Florida, the department of insurance tries to turn around a review in 30 to 45 days. If that time period is close to expiring and you can’t respond quickly enough to the objections you receive, you risk disapproval or needing to withdraw your filing altogether.

Pitfall: Prioritizing speed-to-market over due process

Most of our clients want to offer products with the goal of launching them in as many states as possible, as quickly as possible. Due to our experience as an insurance state filing service partner, we know which states are file and use versus prior approval. Certain states allow you to begin marketing your product the moment you hit “submit” on your filing. Others require that you receive full approval before you can market your plan. Knowing the correct state standards can save you from serious infractions.

Pitfall: Lacking an end-goal for the product

It’s always a good idea to make all stakeholders sign off on your entire product, from forms to rates, in the planning phase before you get to your actual state filings. If you want a particular product to have variability, your rates need to coincide to reflect those variations. If you don’t outline these details going into the initial filing, inserting those components after the filing process has begun may require re-filing. This can be costly, time-consuming and frustrating for your entire team.

Pitfall: Inconsistency between rate manuals and forms

Inconsistency is a surefire way to elicit questions and objections from the reviewer. When we provide insurance state filings service to our clients, we always work closely with the product design unit and forms department to make sure that rate manuals are consistent with forms. This is especially important when a product’s allowed benefits vary from state to state and impact rates. Double check all relevant documents to make sure everything matches.
State filings are a complicated process that requires close attention to detail. A seemingly minor oversight can have a huge impact down the line. It’s always a good idea to partner with state filings experts who can help you manage your filings and make sure all your ducks are in a row before you begin.

If you have questions about how your filings process can be improved, contact Perr&Knight and we can discuss ways to streamline your operations.

Expert Tips to Avoid Accident & Health State Filings Form Rejections

State filings form rejections waste your company’s time and money. When you are forced to resubmit your forms, your company is on the hook to resubmit state filing fees (where applicable) and SERFF fees. These fees might be nominal in some cases, but if you are required to resubmit multiple forms in multiple states, they can range from a few hundred to thousands of dollars. Depending on the state, when you resubmit, you also run the risk of re-starting the approval clock from zero. This can result in delays of weeks or months, and lost revenue due to delayed insurance product releases.
During our decades providing state filings services, we’ve seen almost every reason a form is likely to be rejected. We also know that many of these setbacks are avoidable. Here are some of the most common mistakes that lead to rejection–and what you can do to prevent them.

Tip #1: Pick the appropriate type of insurance (TOI)

When you file through SERFF, you must specify the correct code for the exact type of policy you are submitting. In most cases, a sub-TOI is also required. These codes are crucial because they let the department know what to expect when reviewing your forms. The reviewer evaluates your form through the lens of your selected TOI, looking for particular information. A wrong TOI code subjects your form to review under the wrong classification and may result in unnecessary objections. It can also make your submission look sloppy. Submitting a filing under an incorrect TOI is one of the fastest ways to get your form rejected outright.
NAIC publishes updated codes every January. Each state’s DOI has the authority to control the number and types of insurance codes that they accept each year. Depending on the types of policies issued in their states, commissioners can “turn on and turn off” codes at their discretion. Insurance consulting companies that offer state filing services regularly review these changes, looking for new codes that apply to emerging products and codes that are no longer in use.
But what if your policy doesn’t exactly fit a particular TOI? No matter whether your product is an exact fit or not, you must pick a TOI code. For policies that don’t exactly match a particular state’s TOI code in SERFF, select the code that most closely aligns with your policy, then address individual points of variation in the filing description. Unfortunately, there are no guarantees that a reviewer will read your description, but it’s your best course of action. If you’re unsure about which TOI to select, work with an experienced insurance consulting company that specializes in state filing services. They’ll help you evaluate the code that most closely applies to your form.

Tip #2: For group policies, correctly identify your market

Selecting the correct group designation (“employer,” “union,” “association,” etc.) is hugely important. Your form is subject to rejection if the designation is incorrect or does not match what is allowed in a particular state. As with correct identification of TOI, the self-designation sets the lens through which the reviewer will check your forms. If you are missing required accompanying forms (i.e., association by-laws) for a particular type of group designation, your filing is likely to be rejected.

Tip #3: Pay close attention to the requirements of each state and line of business

Checklists, transmittals and certification requirements vary by state and by line of business. Health-specific plans that are subject to the Affordable Care Act (ACA) require additional considerations, including form and rate requirements and other ancillary forms. It’s easy to get lost in the weeds. You must have a clear understanding of the questionnaires and filing certifications required by each state. These requirements are usually­–but not always–listed on SERFF. Pay attention to these details. Missing or incomplete information will stop your filing in its tracks.

Tip #4: Include required information–and nothing more

Pay close attention to the specific information that should accompany each filing. Include what is required by SERFF but do not include additional information. Doing so can open your filing up to questions and confusion.
The sheer volume of work required to track filing requirements that change frequently and vary by state can present challenges for internal departments at most insurance companies. We recommend working with an insurance services partner who provides detailed content reviews as part of their state filings services. Their breadth of experience and deep understanding of all specific statewide filings can save you time, money and runaround.
When it comes to avoiding state filings form rejection, the most important thing is to take your time. Hasty work leads to oversights and careless mistakes that can set your filing back to square one.
Have questions about your state filings process? Contact us today to speak to our state filings experts. 

5 Strategies to Improve Your State Filings Process

As every insurance professional knows, an inefficient state filings process can have a major negative impact on day-to-day operations and the timely filing of submissions. Problems related to organizing, sorting and tracking state filings consume time and resources and can create frustration and friction between departments. During our decades of providing insurance support services, we hear regular mentions of these challenges. As a result, we have identified five useful strategies to improve your company’s state filing process starting immediately.

Strategy 1: Stop relying on local storage and MS Excel.

Files stored on network drives, personal computers or on individual hard drives that are organized by MS Excel spreadsheets can lead to significant problems due to accidental erasure, data overwrites and inaccessibility by others. Local storage failures can stop your state filings in its tracks and render your team powerless to obtain vital information. Under audit, digging through old drives for information can waste days or weeks of manpower. Centralize your files in a cloud-based system and ensure your information is always safe and available.

Strategy 2: Say goodbye to your internally developed insurance software systems.

While it seemed like a good idea to develop an in-house state filings management system a decade ago, you might now realize that sustaining the software and hardware required for a secure and reliable system eats up more resources than your company can handle. These outdated systems can slow down the very processes they were developed to enhance. Maintenance and upgrades on legacy systems can get expensive and pose scalability challenges. Often only a few people on staff understand the system’s complexities and must personally resolve hiccups, thus stealing their attention from other duties. Switching to reliable hosted state filings software can ensure that your technology keeps pace with your business needs.

Strategy 3: Enable secure access by more individuals.

An insurance company’s state filings are often handled by a single department comprised of a few employees who manage all filings and issue all status reports. This employee involvement can slow the process down due to the time it takes to request information and generate reports. By storing your state filings in a web-based central location, you can issue log-in credentials to various stakeholders who have the ability check the status of filings at any time. Accessible and transparent data empowers users to get the information they need without running the risk of missed communications or slow-downs caused by human oversight.

Strategy 4: Maintain updated forms libraries and filing status information.

Old or outdated state filings status information can result in time-wasting confusion and policy issuance of incorrect forms. Rather than risk this unnecessary runaround, invest in insurance software that displays status and other forms data in real time and can be searched easily using relevant text. This enables all interested parties to monitor filing progress and obtain accurate, time-critical data at any time. 

Strategy 5: Take immediate action to enact change.

“Business as usual” operations avoid rocking the boat today at the expense of tomorrow. While it is easier to continue relying on a broken system and delay necessary improvements to your state filings protocol, you do so at your own risk. Chasing missing paperwork, sifting through email chains and calling emergency IT support to extract data after hardware failures takes time, attention and energy away from your staff–and only gets you as far as the next process failure. Generate a realistic timeline to improve your state filings process then stick to your benchmarks and watch your process improve.
Letting go of old systems and processes that no longer serve your business can be a daunting task. At Perr&Knight, we have seen these challenges affect scores of clients who watch their state filings systems become more and more fractured but lack a viable alternative. We enhanced our own state filings services by developing, a cloud-based insurance software that streamlines filings process by directly addressing many of the pitfalls described above. In addition to using this software internally for our insurance support services, we offer for license to insurance companies who seek a single, reliable solution to address their state filings challenges.
No matter which of the above strategies your company decides to employ, the first step to improvement is recognizing the limitations of your current processes and resolving to make a change. For questions about how to streamline your state filings process, call Perr&Knight at (310) 230-9339 or contact us today.

SERFF liberation: The System for Electronic Rate and Form Filing needs competition

The property and casualty insurance policies that most Americans buy depend on a system by which insurers file rates—the fees they charge for insurance policies—and forms—the language and forms insurers use to describe those policies to consumers. All 50 states and the District of Columbia have separate laws concerning these rates and forms. Increasingly, these rates and forms flow through a computer program called the System for Electronic Rate and Form Filing (SERFF), which is owned and operated by the National Association of Insurance Commissioners (NAIC). Nineteen states require that all filings go through SERFF.
This article explains the System for Electronic Rate and Form Filing’s structure and raises questions regarding its usefulness. The article’s first section provides a broad overview of the “admitted” or “standard” insurance market, and describes why rate and form filing are essential to its continuation in its current form. The second section describes the history and function of SERFF. The third section discusses three major problems with SERFF. The fourth and final section proposes a series of solutions that would solve these problems. SERFF, as it currently exists, raises serious practical, equity, and legal questions—particularly relating to the delegation of taxing authority—and needs reform.
Rate and Form Filing: The Admitted Market Described
Most Americans buy insurance in the “admitted” or “standard” market. Two fundamental features distinguish this market from the “non -admitted” or “excess and surplus” (E&S) market: “utmost good faith” sales and a near  certain guarantee that claims will be paid. These two features imply a level of third-party oversight of rates and forms.
Utmost good faith refers to the circumstances under which nearly all insurance policies are sold. Essentially, it means that buyer and seller agree to disclose all pertinent information to each other in an honest and forthright fashion. Insurance consumers must disclose all pertinent risk information to their agents and agents must provide accurate, straightforward, common sense descriptions of the products they are selling. Agents do not have to perform detailed investigations of their customers’ lifestyles and risk factors and consumers do not have to understand every legal detail of the policy language. In other words, when a customer tells an agent that a roundtrip commute is 40 miles, the agent can simply assume that is true. When an agent tells a customer that a policy will cover theft from a car, the customer can rely on thefts, as they are commonly understood, being covered.
A regime of utmost good faith contracts in a common law system requires broad consensus on the meaning of specific contract terms. To facilitate standardization, a private, national organization called the Insurance Services Office (ISO) maintains standardized forms that serve as the basis for almost all insurance policies.All states have different laws governing insurance, so these general standard forms must be modified for every state. Different companies, furthermore, modify these forms to gain a competitive advantage or to serve their customer base. (For example, one auto insurer that began by serving government employees continues to provide special discounts for most people who work for the government, while another insurer that focuses on the military provides special coverage for military uniforms.)
These standard forms require state level reviews in order to bring them into compliance with various state insurance laws. Without such reviews and a broad agreement on the meaning of policy language, any ambiguity or dispute would require significant legal wrangling. Maintaining both state specific insurance regulation and an utmost good faith system requires that someone at the state level check forms for compliance with state laws and regulations, but it does not necessarily need to be government doing so. Form review and regulation can be handed over to private parties—some states, including California and Virginia, contract out some aspects of it.
The admitted market also provides a near ironclad guarantee that insurers will pay all legitimate claims. It carries out this guarantee through solvency regulation and a system of state level guarantee funds.
Solvency regulation, also known as actuarial adequacy regulation, is essentially a post facto effort to prevent fraud. It is a way of making sure that companies can actually pay the claims for the policies they write. Since insurance is mainly a promise to pay in the event that something unexpected and adverse happens, companies making those promises must have reasonable assurance that they can keep them. This, in turn, requires that someone oversee insurance company investments—insurers could not, for example, put all their money into penny stocks—and make sure that they charge rates high enough to pay the claims they can reasonably expect. In the excess and surplus market, contracts and detailed examination largely accomplish this. In the admitted market, solvency regulation does it.
Actuarial adequacy regulation requires that someone monitor the rates being charged. This does not mean that government has to approve them or has any authority to say that they are “too high”—in some states, including Illinois, Wyoming, and Vermont, government officials have little or no say over how high rates should go—but it does mean that someone must stop rates from going below the level needed to pay claims. Even states that do not require filing of rates still require that companies keep information to justify their rates open to inspection.
In addition, all 50 states maintain state guarantee funds. With the exception of New York’s fund, these guarantee funds function as industry run associations.2 Insurance companies that want to operate in the admitted market must participate in the guarantee fund. When and if an insurer proves unable to pay its claims, the guarantee fund imposes a special tax, called an assessment, on all companies writing insurance policies in the admitted market. The system certainly implies some moral hazard, but given that insolvent companies face a severe penalty in that their assets are liquidated in full, the moral hazard from guaranteeing payment of their claims does not seem that severe. Guarantee funds do not always assure 100 percent payment of claims and few cover very large claims from very wealthy individuals or business.3
For insurers and consumers who do not feel they need the assurance of the admitted market, it is almost always possible to do business with excess and surplus companies, which do not have to submit their forms or rates to any state authority.
The E&S market is not chaos. In fact, it can—and sometimes does—function a lot like the admitted market. Two parties in the excess and surplus market can swear they will deal with one another on an utmost good faith basis. All states, furthermore, have laws mandating that excess and surplus companies charge adequate rates. Although all excess and surplus lines policies are unique, some relatively common types of policies— coverage of collections of exotic cars, for example—function very much like policies in the admitted market and may even draw on the same ISO forms.4
SERFF and Its Owner
The System for Electronic Rate and Form Filing took on its current form in the mid 1990s. The system, says its owner, the National Association of Insurance Commissioners, “is designed to enable companies to send and states to receive, comment on, and approve or reject insurance industry rate and form filings.”5 It does this, but not very well.
NAIC is an unusual organization. It has some aspects of a government entity and some aspects of a private one. On the one hand, NAIC describes itself as a private organization, and has some features of the same. It is registered under section 501(c)3 of the Internal Revenue Code, does not report directly to any particular government any more than any other non profit, does not need to follow any government hiring and purchasing rules, and is not covered by freedom of information laws. Like other associations, NAIC works to advance the interest of its members, through model legislation and lobbying.6
On the other hand, NAIC has significant government like features. First, all of its members are jurisdictional – usually state -insurance commissioners. Twelve are state wide elected officials and all of the others are reasonably important state level officials. Second, it has some powers that broach on lawmaking, including its administration of large parts of the Interstate Life Insurance compact, which harmonizes life insurance standards and practices around the country and sets technically voluntary “standards for accreditation” to which almost all states adhere. Therefore, NAIC has enough power for it to deserve the same scrutiny that one might apply to a government, especially since it owns and manages SERFF.
How SERFF Works
The System for Electronic Rate and Form Filing is a paperwork flow management tool. SERFF creates a universal interface for dealing with correspondence between insurers and insurance regulators. It assigns a unique number to each filing and provides a standardized place to manage correspondence between rate examiners and insurance company employees.7
For more than a decade, SERFF has managed the paper flow for insurers and state insurance departments alike. The training manual that NAIC publishes for SERFF says that the system “promotes uniformity and has the added benefit of supporting the flexibility states need to accommodate their differing requirements and laws.”8 SERFF pursues its first goal by making use of standards – uniform forms and product codes – that NAIC and ISO have introduced and through its administration of the Interstate Life Insurance Compact.9 As noted, nearly everything – including some of the standardized forms – remains subject to state level oversight and changes in order to conform to various states’ laws.
The NAIC’s management – which ultimately reports to state insurance commissioners – has total ownership over SERFF. Currently, a joint industry government board of 13 members – seven from government and six from industry – oversees SERFF. The board requires a supermajority of 10 to make most decisions. However, NAIC has often acted without the board’s approval. In 2007, for example, NAIC introduced a premium tax filing companion to SERFF called OPTins without ever even mentioning it to the board.10  In 2008, the NAIC culminated this trend when it announced plans to take away nearly all of the board’s power and demoted its status to that of an “advisory group.”11
NAIC remains the sole owner of all SERFF trademarks and intellectual property. The system has found widespread adoption. As of early 2009, 19 states mandated its use and all others used it in some respect.12 Every national insurer and every domestic insurer operating in those 19 states must use it and pays its filing fees.
SERFF’s Revenue
SERFF supports itself through fees paid by the industry; NAIC sets these fees on its own. SERFF sets a standard filing fee of $7 per filing and allows companies to buy “blocks” of filings at prices that can go down to $6 each. State insurance regulators pay no actual fees to participate in SERFF.13 The NAIC and SERFF’s board can vary these fees without any consent from state authorities. Being mandatory, SERFF makes a lot of money for NAIC. Business Insurance Magazine reports: “At a December 2007 SERFF board meeting, the NAIC provided financial data through Oct. 31, 2007, that showed nearly $2.46 million in SERFF revenues and nearly $1.29 million in operating expenses, resulting in a profit of about $1.17 million.”14
During 2007, NAIC’s best year ever financially, this comprised about 20 percent of the $5.5 million in surplus earned by NAIC – what a private company would call profit. For 2008, no hard data are available but it appears that NAIC’s surplus will total only about $120,000 according to industry data made available to the Competitive Enterprise Institute. According to NAIC, SERFF processed over 500,000 filings during 2008 and, charging a minimum of $6 per filing, this would have produced at least $3 million in revenue.15 However, since $6 is only a floor for fees charged, many transactions would have netted more than that.
Problems with SERFF
For as much money as SERFF makes for NAIC, the program does not accomplish its job particularly well. It has rarely been updated, its profits appear to constitute monopoly rents, and its structure may well violate several state constitutions. This section describes the problems.
SERFF is Out of Date. In essence, SERFF is a reasonably simple, customized database application. As a piece of software, it is not complicated or expensive to create. The interface appears to be something that someone familiar with the software could create in a few days with an off- the- shelf rapid development tool such as Oracle’s Application Express.16 (Building and coding queries, however, would take more time.)
SERFF does not fully automate the process of rate filing. Many otherwise standardized – or semi -standardized – forms and supporting data must be submitted via attached PDF documents, rather than through a fully interactive interface.17 The software is not up to date. It uses Microsoft Internet Explorer 6—an eight year old Web browser—as its default client interface.18 Users are advised to use Adobe Acrobat 6, released in 2003, to deal with documents submitted through SERFF. In short, as a computer program, SERFF provides nothing exceptional. SERFF announced no major upgrades to its software during 2008.
SERFF’s value comes from its standardization and the work that state insurance departments – and their industry clients – have put into making their forms available online. Given the software’s enormous profits, it is odd that NAIC has invested so little in it and failed to bring it up to date.
SERFF Is Unfair. The “profit” that SERFF earns is what economists term a “rent” –  surplus revenue obtained due to a third party’s interfere in an otherwise mutually beneficial bilateral exchange. As noted, nineteen states require that all filings go through SERFF and thus require insurers to pay NAIC’s fees. These fees would be called taxes were they to flow to state governments. Instead, the NAIC collects the fees and spends the money on purposes that it never fully discloses to the payers. The excess profits can fairly be described as a tax for private purposes since insurers have no choice in many states but to pay them. It is fundamentally unjust to mandate the payment of a tax to a private party. People and corporations deserve choices. The states themselves do not share in NAIC’s revenue from SERFF. The money it earns goes to NAIC, not to the state insurance departments that must pay to comply with it.
SERFF Ought to Raise Constitutional Questions. Several (though not all) states that mandate the use of SERFF have provisions in their constitutions that ought to raise questions about the legality of the system. Many state constitutions allow only the “state” or the “legislature” to collect taxes. Thus, a serious question exists whether SERFF’s fee might be considered an authorized “tax.” The fee, after all, is collected by a private party and set without direct control or oversight by any legislature. Insurers and others who pay SERFF fees may have grounds to launch a legal challenge to the system. Eight states that mandate SERFF filing have provisions that might be used to challenge SERFF.19

  • Georgia: “Except as otherwise provided in this Constitution, the right of taxation shall always be under the complete control of the state.”20
  • South Dakota: “No tax or duty shall be imposed without the consent of the people or their representatives in the Legislature.”21
  • Rhode Island: “All taxes…shall be levied and collected under general laws passed by the General Assembly.”22
  • Minnesota: “The power of taxation shall never be surrendered, suspended or contracted away.”23
  • New Hampshire: “No subsidy, charge, tax, impost, or duty, shall be established, fixed, laid, or levied, under any pretext whatsoever, without the consent of the people, or their representatives in the legislature, or authority derived from that body.”24
  • Massachusetts: “No subsidy, charge, tax, impost, or duties, ought to be established, fixed, laid, or levied, under any pretext whatsoever, without the consent of the people or their representatives in the legislature.”25
  • Michigan: “The power of taxation shall never be surrendered, suspended or contracted away.”26
  • Oklahoma: “The power of taxation shall never be surrendered, suspended, or contracted away.”27

SERFF Does Not Perform Its Central Function Very Well. SERFF’s central function is to facilitate exchange of information on insurance rates and forms across states, but in some instances, the data exchanged through SERFF seems scanty. For example, in addition to some check boxes, SERFF’s property and casualty rate filing. Web forms require only eight discrete pieces of data – which essentially amount to “How much do you want to charge?” and “How many people will this impact?”28 That sort of data will satisfy few, if any, state regulators alone; all states have regulations beyond this.29 Nearly all states require additional data justifying the rates based on loss experience, impact on the company solvency, fairness to various protected groups, and compliance with numerous other state laws.
Conclusion: A Proposed Solution
Rather than maintain these mandates, NAIC could best advance its own mission by opening SERFF to competition. In establishing a series of uniform standards for data exchange relating to files and forms, NAIC has done the job most consistent with its non profit mission. However, in earning monopoly rents, failing to update its software, and maintaining a fee structure that may violate some state constitutions, NAIC behaves in a questionable manner. It should strive to improve SERFF for states and insurers alike by separating its functions and creating a flexible “open source” license for SERFF.
As long as NAIC acts like a government in many respects, it merits the same scrutiny and oversight as governments do. A reform process for SERFF would involve three actions:

  • Separation of SERFF’s intellectual property from its operations;
  • Creation of an “open source” license for SERFF; and
  • Allowing free competition between providers of “SERFF standard” software. Essentially, SERFF would become a standard rather than a specific application.

SERFF reform would require splitting SERFF into two entities – at least one of which should be independent of NAIC. The first entity would administer SERFF as it currently exists. It could be a wholly independent, investor owned company, a for-profit subsidiary of NAIC, or some other private entity. As a private company, it would collect all fees owed for SERFF filings under the current system, set its own prices, and be able to do anything else that the law does not specifically prohibit.
Another entity, a non profit consortium independent of NAIC – perhaps controlled by an industry regulator board – would own SERFF’s intellectual property. It would license the SERFF trademark, oversee a “standard” SERFF code base, and certify privately produced software as “SERFF compatible.”
This code base would be governed under an “open source” license.30 Like all open source licenses, it would grant programmers the right to modify, redistribute, and profit from the SERFF source code. Anybody who wanted to create a product and market it as SERFF compatible would have to subject it to a review process overseen by the consortium. (The consortium members could agree to use only products that passed this review process.) The process would provide assurance that various SERFF compatible products could exchange data freely, work with one another, and share common filing tracking numbers. Review fees would fund the consortium’s operations. Such a process has worked for dozens of other Internet applications – HTML/HTTP (for Web pages), MIME (for e mail), Rich Text Format (for word processing documents) – are all “open” standards maintained through consortia. Many parties market and distribute applications that use them and all of the applications, for the most part, work pretty well together. States and companies wishing to depart from the SERFF standard could do so.
The opening of the SERFF source code would solve most of SERFF’s problems. Most importantly, the questions about delegation of tax responsibility would be resolved. SERFF would clearly be a private market product and no state or company would have any specific obligation to pay money to NAIC or to anybody else in particular.31
States and insurers satisfied with the NAIC’s current management of SERFF could continue using the same software they use now. On the other hand, those states and individuals who have problems with the system could choose from a variety of new products that would spring up in the wake of the opening of SERFF’s current business model. Some operators might simply license the product to insurers and allow unlimited use for a flat fee. Others might continue with NAIC’s pay -per- use filing system. Some might charge nothing for the product and make money off of technical support, sales of related products, or even (as is the case with the Linux operating system) the notoriety gained through having developed the product. Since NAIC would no longer have a monopoly on the product, no constitutional questions would exist. As different developers create new applications that serve the same functions as SERFF, people dissatisfied with the old software’s progress could finally take their business elsewhere.
In addition, a more open version of SERFF would bring market forces to bear. Having the choice among multiple ways to file forms and make actuarial adequacy information available would make it easier to create new products within the admitted market. Constitutional questions about the delegation of tax authority would also vanish.
SERFF as it exists does not work, and therefore a better system is worth considering. A competitive, open -source SERFF system would work better than the existing system and would increase freedom for insurers and consumers alike.
This article was originally published May 1, 2009 in issue no. 155 of the Competitive Enterprise Institute’s OnPoint series.

1 For example, nearly all homeowners’ insurance policies for single family detached houses get written on the basis of a form called the “HO 3” which covers 16 named perils and everything else that is not specifically excluded.
2 New York has a pre funded guarantee fund managed by the state as an insurance company. Its functioning is, in many respects, similar to the Federal Deposit Insurance Corporation.
3 Florida’s insurance guarantee fund is typical. The fund covers claims up to $500,000 for homes and $300,000 for most other claims. See “About FIGA,” For another example, New Jersey offers coverage up to $300,000.
4 For reasons that lie beyond the scope of this paper—probably related to the transaction costs implicit in duplicating the current features of the admitted insurance market without a governmental rate overseer or mandatory guarantee funds— very few individual consumers choose to buy policies in the excess and surplus lines markets. Most well known insurers do not operate in the excess and surplus lines market and those that do typically do so through subsidiaries that maintain distinctive, independent brand identities.
5 National Association of Insurance Commissioners/SERFF, “About SERFF,” 2008,
6 NAIC does much of its lobbying through its D.C. office. NAIC’s major policy positions include opposition to national regulatory modernization for insurance and support for global solvency standards.
7 Ibid, p. 15, pp. 169 224.
8 NAIC, SERFF Version 5: Industry Manual, 2007, p. 4.
9 Ibid.
10 Ibid.
11 Meg Fletcher, “Stoked to Carve SERFF: NAIC Proposal Called ‘Hostile Takeover,” Business Insurance, August 11, 2008.
12 NAIC, “List of States that Mandate SERFF,”
13 SERFF rates are not published in any widely available source; industry sources reported the fees. State insurance departments do have some costs. They must have computers to handle SERFF filings and NAIC strongly recommends that they use Adobe Acrobat Professional. Acrobat Pro lists at $160 but is available for $140 on several websites.
14 Fletcher.
15 NAIC, “SERFF Surpasses 500,000 Transactions,” December 6, 2008,
16 In fairness, Web based Rapid Application Development frameworks did not exist when SERFF’s first version came online.
17 Ibid, p. 94.
18 Microsoft Corporation, “Windows History: Internet Explorer History,” 2007, See NAIC (2007) for requirements.
19 In all of these states, “workarounds” exist that could make it possible for the current system to continue. In the four states that reserve the power of taxation to the legislature, the legislature could simply pass a statute mandating the payment of SERFF fees. However, states that forbid the surrender, suspension, or contracting of revenue collection could face more significant problems—state courts could consider the ability of NAIC to set fees on its own as an instance of “contracting away.”
20 Constitution of the State of Georgia, Article VII, Section 1(I).
21 Constitution of the State of South Dakota, Article VI, Section 17.
22 Constitution of the State of Rhode Island, Article VII, Section 1(I).
23 Constitution of the State of Minnesota, Article X, Section 1.
24 Constitution of the State of New Hampshire, Article 28.
25 Constitution of the Commonwealth of Massachusetts, Article XXIII.
26 Constitution of the State of Michigan, Article XI, Section 2.
27 Constitution of the State of Oklahoma, Article X, Section 5.
28 Ibid, pp. 88 89.
29 Regulators have not specifically complained about this because they typically work to enforce their own state laws.
30 NAIC would likely select a given license from the long list of licenses that have gone through the Open Source Initiative’s Review Process. Open Source Initiative, “Licenses by Name,”
31 By way of analogy, consider common law court requirements for the format of legal briefs. Since any decent desk top publishing software can produce the same brief, the requirement does not impose any specific “mandate” or “tax” even though it may impose a burden of sorts.

Eli Lehrer is a senior fellow at the Competitive Enterprise Institute where he directs CEI’s Center for Risk, Regulation, and Markets. RRM, which operates in both Washington, D.C. and Florida, deals with issues relating to insurance, risk, and credit markets.  Prior to joining CEI, Lehrer worked as speechwriter to United States Senate Majority Leader Bill Frist (R.-Tenn.). He has previously worked as a manager in the Unisys Corporation’s Homeland Security Practice, Senior Editor of The American Enterprise magazine, and as a fellow for the Heritage Foundation. He has spoken at Yale and George Washington Universities. He holds a B.A. (Cum Laude) from Cornell University and a M.A. (with honors) from The Johns Hopkins University where his Master’s thesis focused on the Federal Emergency Management Agency and Flood Insurance. His work has appeared in the New York Times,Washington Post, USA Today, Washington Times,Weekly Standard, National Review, The Public Interest,, and dozens of other publications. Lehrer lives in Oak Hill, Virginia with his wife Kari and son Andrew.