Compliance

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

by DJ Lopez

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

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

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

Why Does Reporting of Actions Matter?

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

Ensures Legal and Regulatory Compliance

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

Promotes Uniformity in Licensing

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

Builds Trust with Consumers

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

Upholds Professional Integrity

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

Demonstrates Ethics of Agency Officers

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

Initial Licensing vs. Renewals: Differences in Reporting

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

Avoid Compounding Effects

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

Illustrative example:

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

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

Steps to Stay Compliant

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

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

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

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

Streamlining Compliance: Managing Bureau Changes through Automation

by Ashley Allen

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

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

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

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

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

Volume and Frequency of Update

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

Accurate Information

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

Avoiding Compliance Gaps

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

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

Benefits of Automation

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

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

Centralized Record-Keeping

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

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

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

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

by Brett Horoff

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

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

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

You are not alone.

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

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

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

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

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

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

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

Benefit #2: Ensure filing complies with DOI requirements

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

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

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

Benefit #3: Identify potential DOI objections

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

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

Benefit #4: Improve relationship with the DOIs

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

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

Benefit #5: Reduce the time to approval

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

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

Need an expert review of your filings?

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

Please contact us if you need an expert filing review.

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

by Susan Cornett

By Susan Cornett, FMLI, AIRC, CFE and James Vallee, FSA, MAAA

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

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

Why develop a blanket accident policy?

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

Differences between P&C and A&H product development

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

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

Commonly asked questions

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

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

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

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

Start with blanket accident, then expand

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

Work with experts

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

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

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

Guidelines for Filing Program Business

by Michael Covert

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

What is program business?

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

Bureau “Base” Program Filings

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

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

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

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

Program Business Filings

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

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

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

Concerns with overlapping programs

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

  1. Mutually exclusive underwriting guidelines

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

  1. Material mandatory coverage differences

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

  1. Different Distribution channels

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

Multiple Carriers

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

Workers Compensation Issues

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

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

California PPA Rate Filing Moratorium: What Should Insurers Do?

by Brett Horoff

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

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

Submitting a rate filing during the rate freeze

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

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

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

Filing for a variance

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

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

Waiving or not waiving the deemer

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

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

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

Class plan filings are an option

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

Use an expert with years of California experience

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

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

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

2022 Workers’ Compensation Financial Data Calls: What You Should Know

by Chris Curry

The 2022 reporting season is underway for workers’ compensation financial data calls to the National Council on Compensation Insurance (NCCI) and independent state workers’ compensation rating bureaus. This is a very busy season for reporting analysts and data quality staff who will need to aggregate, validate, and submit all the policy and claims financial detail for the year countrywide.

While there are very few changes in the calls and data capture this year, it remains important to keep tabs on updates from the bureaus. For instance:

  • The New Jersey rating bureau has issued a data call to collect COVID-19 pandemic data.
  • The California rating bureau is requiring the reporting of premium detail by month instead of year, starting with 1st Quarter, 2022.
  • Other rating bureaus have updated their front-end and back-end processes. For instance, NCCI updated its system interface slightly, and the NCCI template for uploading data into the financial call system has also been modified.

These are not significant changes but could affect your workflow and timing.

Companies should use the financial call reporting season as an opportunity to closely review their data collection, aggregation, and submission processes for weaknesses and to make updates accordingly.

Closer scrutiny

The rating bureaus have been implementing more edits and cross-reporting reconciliations in recent years and are therefore catching more data reporting inconsistencies. The risk of incomplete or incorrect data has always been an issue for carriers—deadlines are strict and penalties for late reporting can be substantial. With even greater scrutiny from the rating bureaus, carriers are under even more pressure to ensure accurate, on-time reporting.

Statistical and financial data analysis and reporting are non-revenue-generating tasks that can consume precious bandwidth. Timely, accurate reporting draws time and attention from staff whose focus is generally directed toward high-value tasks. As a result, many carriers opt to partner with reporting specialists like Perr&Knight. Delegating reporting to insurance data services experts alleviates the stress and seasonal time crunch of accurate data preparation and submission.

Common reporting problems

During decades of providing insurance data services for workers’ compensation carriers across the nation, we have seen companies run into issues that can complicate reporting and compromise accuracy. Here are some of the most common pitfalls companies experience:

  • Calculating designated statistical reporting (DSR) premium levels—specifically, applying rating modifications and loss-cost multipliers correctly—can be challenging. Different policy types, rating bureaus, and loss-cost adoptions can create different methods of calculation. Lack of experience with this calculation can result in incorrect DSR premium level reporting.
  • Difficulty understanding how deductible programs work. Some portions of deductible policies are not reported to the bureau. For example, large deductible policies and claims must be excluded from most calls, whereas small deductible policies are generally included.  Pay close attention to whether premiums and claims are reportable net of the deductible versus gross of the deductible when reporting. Plenty of carriers get tripped up here.
  • Issues related to comparisons between financial data and policy/claims data. Disconnects between unit statistical reporting (detailed audited premiums and claims reporting) and financial data calls will cause problems. Companies must uncover discrepancies and clear up edits in financial-to-statistical data reports before submission or risk penalties.

A head-start on accuracy

Working with experienced third-party support teams for reporting also ensures the cleanliness of data before submission to the rating bureaus. Before the Perr&Knight teams even submit data to bureaus, we aggregate all the required information and perform reconciliations to a company’s NAIC Annual Statement. If there is a difference, we work with our clients to resolve the error or create a detailed explanation for the bureau.

Offloading reporting to the experts at Perr&Knight protects against inaccuracy by ensuring all state-specific updates and requirements are taken into consideration. Our financial call reporting specialists make sure all the bases are covered.

The 2022 financial data calls show reporting is becoming more robust as it is further digitized. Data is under closer scrutiny and edits are stricter than ever. For many companies, working with a third-party insurance data services partner is the most efficient, cost-effective solution to ensure data accuracy and receive added support for this essential and resource-consuming task.

Offload this year’s NCCI data call to the reporting specialists at Perr&Knight. Contact us today to learn how we help.

A&H Insurance Advertising: Rules & Compliance Overview

by Susan Cornett

Advertisements are an integral part of any A&H insurance marketing plan. Insurance companies must find ways to get and keep the attention of a prospective insured. Given that the average American sees more than 4,000 advertisements each day, insurance companies look for creative ways to attract prospective insureds. However, it’s not as simple as writing a clever ad. Insurance companies are subject to various levels of regulation and process requirements.

What is an advertisement?

An advertisement is any material that is published, printed, scripted, or displayed to a consumer. This includes, but is not limited to, postcards, electronic communications, billboards, radio or TV ads, and websites. It can also include sales talks and presentations for use by agents, brokers, producers, and solicitors.
Advertisement includes advertising material sent with a policy when the policy is delivered and material used in the solicitation of renewals and reinstatements. It also extends to the use of all media for communications to the general public, to the use of all media for communications to specific members of the general public, and to the use of all media for communications by agents, brokers, producers and solicitors. The definition of advertisement casts a wide net.

What rules apply?

Insurance advertisements are subject to federal, state, and in some cases, local statutes, regulations, and ordinances. At the federal level, insurance companies must review HIPAA marketing regulations and the CAN-SPAM Act.
The HIPAA regulation defines marketing materials as a communication about a product or service that encourages recipients of the communication to purchase or use the product or service. Applicability of the act depends on the recipient and the service or product in the communication.
CAN-SPAM sets the rules for commercial email, establishes requirements for commercial messages, and provides penalties for violations.
In addition to the federal requirements, most states have adopted some version of the NAIC’s Advertisements of Accident and Sickness Insurance Model Regulation. This regulation defines advertisements and sets forth requirements for content, control, and filing requirements. Most states require insurance companies to file Medicare Supplement and long-term care ads, but some states require that all advertisements be filed. At the local level, city and county ordinances control signage, such as those seen in traffic medians or attached to light poles.

Who controls advertisements?

Insurance companies have a duty to maintain control of their advertisements, whether those ads are created by a home office employee, a broker, or an independent agent. Insurance companies must have procedures in place to establish and maintain a system of control over the content, form, and method of dissemination of all of its advertisements.
According to our insurance support services experts, best practices include a formal advertising approval process, tracking, and record retention. States rely on insurance companies to self-monitor their advertising procedures and require a signed certification of compliance each year with the annual statement filing.
While A&H advertising requirements can be overwhelming, it’s also important to note that most states have adopted the same basic requirements with respect to content. It’s usually not necessary to create 51 versions of an ad, although there are almost always state variations.

Next steps

Whether the advertising campaign is one jurisdiction or fifty-one jurisdictions, insurance companies must understand requirements for content, filing, and distribution. Contact the insurance consultants at Perr&Knight to learn how we can provide insurance support services for advertising review and the development of processes and procedures to manage advertising.

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.

You Better Watch Out, You Better Not Cry, State Filing Requirement Changes Are Already Here!

by Jessica Witvoet

Authors: Neresa Torres, Jessica Witvoet, API, AIS, AINS, AIT, and Diane Karis,AINS, CPCU
At Perr&Knight, we submit thousands of product filings (rate, rule and form) a year to the various state Departments of Insurance (“DOIs”) – and 2020 has been no exception. In fact, in addition to our normal annual volume of insurance product filings, COVID-19 has increased the number of state filings for pandemic-related submissions.
Throughout the course of this year, we have noticed a few trends in how states’ DOIs are reviewing product filings. Since we handle a high volume of submissions across all jurisdictions and all lines of business, we are able to quickly identify variations from previous years.
Here’s what we have discovered. 

States are getting pickier about the rules

Though states have always clearly articulated their filing guidelines, in preceding years DOIs were more likely to excuse minor deviations and process those filings anyway. DOIs in the past may have been inclined to give some leeway. This year, however, many states are opting to exercise their right to issue an objection or reject a filing outright if every detail is not spot on. Small errors that may have been “no big deal” in the past are now grounds for review or disapproval.
For example, Idaho is now closely scrutinizing the status of the filing in the domicile state. In the past, a “pending” entry or concurrent submission of domicile state was acceptable. Now, it is required that the program being filed is approved by the domiciliary state prior to submitting the filing in Idaho. Unless there is a reasonable explanation as to why, the filing will be rejected or subject to a 7-day turnaround for correction. If the information is not included at all, the filing is often disapproved without any opportunity for correction. Kansas has become more finicky, too, requiring each rule filing to have an accompanying form, or an objection will be issued. Other states have implemented guidance tools and checklists to ensure compliance with changing rules and requirements. For example, Massachusetts has created a four-part instruction guide to cover what is required for a filing to be considered acceptable.
The point is: don’t rely on DOIs being as forgiving as they have been in previous years. Make sure all your filing details are correct and complete.

Objections, rejections, and time-to-approval are increasing

Insurers are not the only ones experiencing administrative delays due to the pandemic. Many state DOIs shifted to remote working scenarios as well, and this has impacted their ability to issue speedy approvals. In California, for example, commercial, homeowners’, and other personal policies are taking longer to receive approval than in years past. The number of “pending” approvals has also increased.
Closer scrutiny by state DOIs is resulting in a higher number of rejections for minor issues. On the bright side, turnaround times for re-submitting are also faster. In many instances, we have seen DOIs allow re-submission within 7 to 10 days.
If your filing is rejected, correct the problem immediately and resubmit right away. Sophisticated software solutions like Perr&Knight’s StateFilings.com can help your teams keep a closer eye on filing status.

Other events impacting 2020

In addition to the disruptions caused by the pandemic, social unrest, and an election year, insurers are facing other challenges, such as recertification of the Terrorism Risk Insurance Act (TRIA), which requires all companies to update their language. Travel insurance products are also changing quickly as travel restrictions are lifted and added on a rolling basis worldwide.
This year’s regulatory requirements compel insurers to take a closer look at forms to make sure each meets the DOI’s current standards, which may have been updated recently.

Keeping track of the trends

2020 has been a year of surprise rejections for some insurance companies. It makes sense: companies only submitting a few filings per year – or who haven’t updated their product in recent years – lack the macro perspective to spot trends in DOI behavior.
When a rejection is received, it is important to determine as quickly as possible if the rejection is a unique occurrence or due to a change in a procedural requirement by the DOI. When submitting new filings, comparing against historical filings is no longer enough. Instead, it will be important to keep close track of current trends, as well as to look deeper into the DOI’s reasoning. This insight will help you avoid costly, time-consuming errors moving forward.
Internally, the Perr&Knight state filings department takes note of every rejection/objection we encounter and evaluates it to discover if it is part of a larger directional shift for that DOI, or simply a one-off. When we have questions about a particular DOI action, we contact the reviewer immediately and obtain a more thorough explanation. Because we handle such a high volume of nationwide filings, we remain in regular communication with every state DOI. These strong relationships enable us to obtain clarification on department actions that guide future filings on behalf of our clients.

Work with an experienced partner

Staying compliant today presents more of a challenge than it has in years past. Because the landscape is shifting quickly (as quickly as the insurance industry can shift), insurers are at higher risk of receiving rejections – especially those who submit a relatively low number of filings per year.
This is where working with an external insurance filings support partner can deliver a dramatic difference. Experienced state filings teams manage filings day-in and day-out. Their level of intimate knowledge of each transmittal requirement, variations between states, and regulatory expectations for each line of business can mean the difference between a smooth approvals process or being sent back to square one.
As 2020 draws to a close, the winds of change continue to shift. We expect more deviations from the status quo in the coming year. We’ll keep our clients posted on what we discover and how they can stay ahead of the game.

Questions about how to improve the efficiency of your rate filings? Our state filings experts can help.