Actuarial Consulting Archives - Page 4 of 6

California PPA Rate Filing Moratorium: What Should Insurers Do?

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

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

Submitting a rate filing during the rate freeze

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

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

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

Filing for a variance

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

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

Waiving or not waiving the deemer

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

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

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

Class plan filings are an option

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

Use an expert with years of California experience

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

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

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

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

by Casey Tozzi

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

Large Risk Schedule Rating

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

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

Retrospective Rating

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

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

Large Deductibles

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

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

Automation Tools Support Underwriters

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

Perr&Knight’s Automation Tools

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

How Employees Drive Change at Perr&Knight

by Jason Hudson

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

Measuring Employee Engagement

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

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

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

Making Informed Changes

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

Evolving Our Approach

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

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

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

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

COVID-19 Effects on State Filings

by Tanya Goerg

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

Pandemic/communicable disease exclusions

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

Rate relief & telematics in auto

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

State-specific bulletin updates

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

Objection-based findings

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

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

The pandemic’s long tail

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

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

From Our Actuarial Experts: New Trends in Accident & Health

by Jennifer Choe

Last year was a major disruptor for consumers, insurance companies, and state departments of insurance (DOI). The ripple effects of the COVID-19 pandemic are still playing out, causing changes to consumer behavior and influencing how insurance companies serve them.
Here are some of the recent trends we’ve seen in accident & health coverage – and how insurance companies can respond more effectively to these changing times.

Pandemic-related coverages

Businesses are re-opening, employees are returning to in-person work, and international travel is increasing in popularity. Despite the near-universal desire to return to normalcy, COVID-19-related interruptions are still part of the equation. Insurance companies are faced with new opportunities to provide coverage for COVID-related medical care and travel changes.
Some of the emerging products we have seen include:

Coverage for work-related vaccine mandates
Coverage for mandatory quarantine
Trip cancellation or trip interruption coverage in case of pandemics or COVID infections
Coverage for telemedicine or other virtual care

Self-insured companies are under greater pressure to determine the cost of things like testing or vaccination-related expenses for their employees. Support from experienced actuaries can help accurately estimate these costs.

Younger consumers entering the market

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

The workforce is changing

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

Short-term accident products

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

Partner with insurance product development experts

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

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

South Dakota Springing Forward with Innovation Waiver

by Ieisha James

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

California Approves Vehicle History Rating for Personal Auto

by Brett Horoff

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

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

About Perr&Knight

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

Contact us today for assistance with your California insurance products.

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

Large Risk Rating Options for Workers’ Compensation: What You Should Know

by Cyndi Cooper

The market for workers’ compensation insurance has undergone a shift as large employers with more bargaining power recognize they can achieve a better financial position by obtaining coverage that more closely aligns the total cost with their unique risk factors. State Departments of Insurance (DOI) have approved a number of sophisticated loss-sensitive options for workers’ compensation insurance, further prompting insurance companies to develop programs like these in order to remain competitive.
Below we have provided an overview of large risk rating workers’ compensation products and how Perr&Knight can help you develop competitive plans with the best chance of approval.

Large Deductible Plans

Large deductible workers’ compensation plans provide the same coverage as guaranteed or fixed cost plans, but with higher deductibles, possibly leading to reduced costs for insureds. Deductibles for these plans generally start at $25,000 to $100,000 per occurrence and are ideal for large employers seeking to self-insure a portion of their workers’ compensation losses.
Given the insurer is typically required to pay claims as they occur and seek reimbursement from the policyholder for claims below the deductible amount, insurers will often require the insured to provide collateral to secure the claims in this layer. Some jurisdictions may require insurance carriers to hold collateral, and insurers often need to analyze each risk individually to determine the amount of collateral to collect. This is an instance where turning to experienced actuarial consultants is invaluable. Our expert teams can assist in determining how much collateral to hold, either by performing actuarial loss projections based on historical loss runs prior to the onset of the policy or performing a collateral evaluation over time to ascertain how losses and collateral needs have developed for a particular policyholder.
Our actuarial consultants can help you develop your large deductible program, provide guidance on the various premium threshold requirements and permissible deductible levels by jurisdiction, as well as meet other state-specific requirements when filing large deductible workers’ compensation programs.

Retrospective Rating Programs

Retrospective (also called “retro”) rating plans determine the final workers’ compensation premium by evaluating actual losses incurred during the policy period. Employers pay a certain premium upfront, but at set intervals after the policy expires, insurance companies evaluate actual losses versus what was originally expected. This can result in a premium refund to the insured if losses are better than expected and additional premium due if losses are worse than expected. These sophisticated plans can be helpful in controlling the final cost of an organization’s workers’ compensation program.
Because of their complexity, it is imperative to set retro programs up correctly from the outset. Perr&Knight’s actuarial consultants can assist in determining proper rating factors (expected loss ratios, the types of excess factors to file, other rating elements to file in various states, etc.), as well as determining if the state DOI will allow exceptions to bureau filed plans.

Large-Risk Alternative Rating Option (LRARO)

A provision commonly contained in retrospective rating plans, LRARO can be layered on top of other programs, enabling employers with a yearly estimated workers’ compensation premium exceeding a certain threshold to negotiate premiums with their insurance provider. With this rule on file, insurers can negotiate the rating factors and premium components involved in determining the final premium for their workers’ compensation coverage.
This option is permitted in most states, but filing requirements vary by jurisdiction. For example, some states have premium eligibility requirements which must be met before the insurance company may use this rating option.
We have deep experience in developing loss sensitive rating programs and filing LRARO rules to achieve exceptional rating flexibility. Our actuarial consultants understand important jurisdictional filing differences and can help you file this provision correctly.

Partner with Actuarial Experts

Sophisticated large risk rating programs add more complexity to an already complicated process. Our actuarial teams are profoundly experienced in the full scope of loss sensitive programs and can help with designing large risk workers’ compensation products including developing rating plans, defining rules, helping with endorsements, and ultimately managing state filings.
For insurance companies already offering loss sensitive workers’ compensation products, we can conduct reviews to determine if it is possible to enhance your product offerings, or conduct detailed competitive evaluations to make sure your program is in line with the market.

Thinking of making changes to your workers’ compensation products? Our expert actuarial consultants can help.

Pet Health Insurance: Eight Key Ways to Enhance Profitability

by Michael Covert

With foreign body ingestion, poisoning, and cancer, along with being hit by car, ligament ruptures, and other accidents and illnesses, pet owners need to be prepared for the large unexpected veterinary bills that occur in treating their pet for these events. Pets are considered family members by many of us and require a significant amount of healthcare over the pet’s life, especially as the pet gets older and illnesses are more likely. In recent years, pet health insurance has been gaining in popularity and provides a way for pet owners to better manage the healthcare expenses of their pets.
For providers of pet health insurance, there are a number of ways to help enhance the likelihood of being profitable in the pet health insurance space while providing a valuable product to the pet owner.

Here are the key items that should be at the top of the list for successful programs:

Consider the impact and correlation between pet age / breed / size: While most pet health insurance writers want to focus on very young pets that will on average have better claims experience, the average age of the book of business will eventually increase as the company renews policies and the renewal of these aging pets will eventually outweigh the newer younger pets. Pet age factors are key in helping to achieve a better rate for the risk, but the risk associated with pet age is highly correlated with breed and size of dog. The table below shows an example of how pet health insurance writers are helping to maximize the correlation between these rating variables.

Don’t rely on age at inception alone: Age at inception is a concept similar to whole life insurance, where your premiums do not increase as your age increases. While this may work for life insurance, it generally results in inadequate rates for pet health insurance as the average age of the book increases. Without another rating variable to compensate for the lost premium as the pet ages, the use of age at inception becomes more problematic as time goes on.
Include automatic trend adjustments: Since the annual frequency and severity trend in pet claims is significant (typically ranging from 8% to 15%), a number of Departments of Insurance (“DOIs”) permit a rating factor that includes automatic trend adjustments. This allows premiums to increase over time without filing a rate increase with the state DOI. It is best to take advantage of this rating factor as it can significantly help with maintaining the profitability of the program in the states where this is allowed.

Following are a couple of examples of approved automatic trend adjustments:

Example 1: Due to this being health insurance for dogs and cats, loss costs will be susceptible to veterinary medical trends which we estimate to be compounding at a rate of up to 9% per year. A trend factor of up to (1+0.09)^(x/12), where x is the number of months since the effective date of this filing, may be applied to this base loss cost to account for the aforementioned inflationary effects.”

Example 2: This factor is based on an expected annualized trend of 10.0% to account for the increasing cost of veterinary medical care. The formula for calculating the factor is (1+0.10)^(m/12) where m = the number of months since the base rate went into effect, and the factor in the first month of the proposed effective period equals 1.000 (i.e. m=0).

Take advantage of ranges and flexibilities: Because pet health insurance is a property and casualty product and typically is filed under personal inland marine (only a handful of states are different), the DOIs in many states allow an insurance company to file subjective and experience-based rating variables for group policies, such as ranges of debits of credits, a schedule rating plan and/or an experience rating plan. It is best practice to add these where permitted to enhance rating flexibility.
Don’t forget about forms: It is important to ensure your policy form has standard waiting periods and exclusions for pre-existing conditions, etc. to make sure you are not covering unexpected past injuries or illnesses.

Keep in mind that there are difficult states when it comes to profitability: Unfortunately, the biggest pet health insurance states when it comes to premium volume are also the most difficult ones to make money, such as California, Florida, New York, and Washington. These four states can sometimes make up to 50% of a nationwide book of business and the necessary rate changes to maintain profitability are often difficult to obtain with long approval timelines. While it may be enticing to write in these states due to the high growth potential, be careful as it is rare to be profitable in these states and very difficult to non-renew the business if things go south.
Don’t set and forget: Pet health insurance rates need to be managed over time. A key to maintaining profitability is to take the necessary rate changes to at least achieve the target loss and expense ratio. Too often companies wait a few years before reviewing rates. This makes it very difficult to realize the rate level needed to achieve and maintain profitability.
Monitor, monitor, monitor: It is important to not only understand the profitability of your book of business from an overall standpoint, but also whether your class plan rating variables are appropriately pricing the risk. Whether rating variables (such as state, deductible, coinsurance, pet age, breed, et.) are reviewed individually or with the use of predictive modeling, these analyses should be performed at least once a year to understand where the program is profitable and where rate increases are necessary to improve or maintain that profitability.

Pet health insurance is a fast-growing market with significant growth potential, but there are also a lot of ways to lose money in the process and companies can get themselves into a hole that is sometimes very difficult to dig out of.
About Perr&Knight
Perr&Knight is a leading provider of both actuarial consulting and pet insurance product development services to companies providing pet health insurance. Our consultants have assisted a number of pet health insurers with developing and maintaining a profitable pet health insurance product.

Please con tact us with any assistance that is needed with your pet insurance product development.

Are Rising P&C Insurance Premiums Eroding Your Company’s Profits? Take Control with Self-Insurance

by Charlie Lenz

Authors: Charlie Lenz, ACAS, MAAA, Principal & Consulting Actuary, and Les Vernon, FCAS, MAAA, Senior Consulting Actuary
Property and casualty insurance brokers are reporting significant rate increases and reduced capacity, resulting in less favorable coverage terms and often higher deductibles or self-insured retentions being offered. Causes are higher underwriting losses, lower investment returns, and now, the COVID-19 pandemic. This has made finding the coverage a business needs at an affordable price increasingly difficult.
The Commercial Auto Liability line is experiencing increased frequency and severity of claims, producing poor combined ratios. Contributors to the increased frequency of claims are more vehicles on the road and distracted drivers in recent years. A shift to newer vehicles with advanced driving technology has made repairs more expensive.
The General Liability line is experiencing increased severity of claims due to a greater portion of claims being litigated and social inflation, where juries are increasingly calling for greater corporate accountability, and high awards are becoming more acceptable.
The uncertainty surrounding the COVID-19 pandemic and the potential litigation to expand coverage for business interruption retroactively has placed upward pressure on Property rates. In addition, recent hurricane and wildfire activity has forced steep increases in premiums for risks with catastrophe exposure.
Exposure of essential workers to COVID-19 infection combined with mandated coverage expansion in some jurisdictions is threatening to increase costs for workers compensation insurance – one of the few lines of business not yet seeing upward pressure on premium levels. There is also uncertainty regarding potential future litigation of health care providers related to COVID-19, which, in addition to an increased frequency of large claims, is contributing to increased rates in medical professional liability coverage after years of flat rates.
With many more workers shifting to working from home as a result of the COVID-19 pandemic, if only temporarily, businesses are less in control of their computer networks and are more susceptible to phishing and hacking activity. As losses continue to rise, rates are predicted to see double-digit increases.
There are alternatives to suffering through multiple years of increasing insurance premiums and/or coverage reductions. If your organization is experiencing lower claim trends than the industry, self-insurance of some form may be an option worth exploring. Your company can retain more of their own risk via a large deductible policy or participation in a risk retention group. Alternatively, the company can form a captive insurance company (or participate in a group captive) to insure against some exposures for which it currently pays a high premium. Potential advantages are lower costs, insulation from some of the volatility of the insurance cycle and, in the case of a captive insurance company, control over claims administration and direct access to reinsurance markets.
In order to determine if self-insurance is a good option for your organization in this hard market, historical claims experience can be used to perform a retention analysis for a large deductible option and a captive feasibility study for a captive option.

Perr&Knight has a large actuarial consulting team for self-insurance. If your company is looking to reduce your insurance costs and is considering self-insurance, contact us. Our actuaries will use their expertise to help you evaluate the different options available.