State Filings

The Impact of COVID-19 on the Travel Insurance Industry

by Crystal London

Authors: Crystal London, FSA, MAAA, Consulting Actuary, and Susan Cornett, FLMI, AIRC, CFE, Manager A&H Product Design
Coronavirus Disease 2019 (COVID-19) has had a dramatic impact on the travel industry – likewise the travel insurance industry – since it first made landfall in the U.S. in January. Travel ground to a near-halt in record time as state and federal governments ordered non-essential businesses to shut down, international borders to be closed, and shelter-in-place measures to be adopted, usually with little advance notice.
According to the TSA, airline travel has decreased by approximately 90% from mid-March to mid-May compared to the same period in 2019. This lack of movement has in turn resulted in a dramatic decrease in the need for travel insurance over the past two months, creating serious consequences for the travel insurance industry.

Lessons from the past

The SARS outbreak of 2002-2004 sheds some light on the role of pandemics in the travel insurance industry. After that event, most carriers updated their policies with exclusions and limitations specifically related to pandemics and epidemics. This has led to some confusion among insureds, as those who purchased travel insurance recently automatically assumed their canceled or interrupted trips would be covered. For many carriers, as of January, COVID-19 has fallen into the category of a “foreseen event” as a result of a pandemic, thereby disqualifying it from coverage applying to trip cancelation or trip interruption. However, an exception to this is if the policy includes Cancel for Any Reason or Interruption for Any Reason. As the benefit name implies, the cancelation or interruption is covered under any circumstance. Therefore, insureds who have purchased this “any reason” benefit are covered and could recoup a least a portion of their trip.
That said, most carriers are still offering trip cancelation/interruption coverage as well as medical expense and emergency evacuation coverage if an insured becomes ill, even if due to coronavirus.
However, if insureds cancel or interrupt their travel due to fear of the pandemic (not illness as a result of the pandemic), this reason may not be covered. Given marketing needs and distribution channels, there is no uniform policy across carriers as to when or why these benefits are not covered. Insureds are receiving multiple answers from multiple sources, further adding to their confusion.

What’s next for the travel insurance industry?

Company business is down significantly right now, with some travel insurance carriers seeing double digit decreases in business. Travel insurance coverage isn’t selling because no one is traveling. On the other hand, this decrease in travel has led to a significant decrease in claims payments, so some balancing is occurring.
Some carriers have responded to the pandemic by offering refunds outside the normal free look period or a change of coverage effective date if insureds postpone or reschedule their trip due to coronavirus. The hope is to keep the business on the books, not cancel outright.
Insurers may also face difficultly obtaining reinsurance for travel, especially for catastrophic events. Reinsurance companies, too, are trying to mitigate their risk. Given the current circumstances, reinsurers might be warier, especially due to recent medical models not anticipating a vaccine for another 12-18 months, or travel restrictions remaining in place until testing is widespread or a vaccine is available.

New state filings considerations

Going forward, we anticipate new regulatory compliance hurdles as a result of COVID-19, but to what extent is not yet clear.
Some states have fast-tracked regulatory measures dictating how carriers must address refunds. New York introduced state bill S8124B in March requiring travel insurance companies to refund premiums for COVID-19 related cancelations, but only in the circumstance that no payable claim has been filed already. Additionally, New York Department of Financial Services issued Insurance Circular Letter No. 4 in March allowing carriers to offer cancel for any reason benefits, which it previously did not allow in the state.
We anticipate additional hurdles and delays in future filings for travel insurance. Not just because many Departments of Insurance are operating with a reduced capacity (many are working from home, too), but because there will likely be added scrutiny on travel policies. We also anticipate questions regarding, and possible objections to, the use of epidemic and pandemic exclusions. We have yet to see the full scope of changes regulators will introduce in the coming weeks and months. The travel insurance industry is still adjusting to changes following the 2017 Market Analysis Working Group, subsequent regulatory settlement agreements, and introduction of model travel laws by both NAIC and NCOIL. Those states that have not yet adopted a version of the model law may take the opportunity to address pandemics and epidemics in the legislation at such time as it is adopted.
Make sure your state filings department or insurance support services partner keeps abreast of each state’s updated regulations and statutes. Pay close attention to the release of applicable new bills and circulars. Continuously monitor updates to make sure you follow the new guidelines produced by state DOIs as this unprecedented event continues to unfold.

Opportunities for the future

The news isn’t all bad. After weeks in quarantine, people are beginning to plan vacations and future travel again. They’ve had plenty of time to brainstorm a dream vacation and government stimulus checks have supplied an infusion of cash. In an attempt to generate revenue, travel suppliers like airlines and cruises are offering deep discounts, enticing people to book now for travel in the future.
For many travelers, trip cancelation insurance has never been top-of-mind ­– until now.  People who have never thought of purchasing travel insurance are seeing the value of coverage and may opt for the added peace of mind when booking.
We are also seeing emerging opportunities for carriers to offer policies reflecting a changing travel landscape. Insurance carriers are reassessing coverage options, some opting to include additional pandemic and epidemic perils within their policy. Conversely, instead of added exclusions or limitations, some carriers are weighing options to offer coverage specifically for COVID-19 related issues.
We anticipate a flurry of new state filings in the coming months as carriers rush to reshape their policies to conform to changing customer demands and updated regulatory requirements that are part of this “new normal.”
Right now, our best advice to mitigate the effects of the pandemic is to remain flexible. Prepare to give up a benefit or “unforeseen reason” clause in favor of keeping your eye on the big picture.  As DOIs update regulations to adapt to changing circumstances, carriers, too, will need to remain open-minded and ready to make necessary adjustments as we all write a new future for the travel insurance industry.

Need help navigating the fallout from COVID-19? Our actuarial and product design experts are here to answer your questions and develop a solid plan to move forward.

California Commissioner Orders Premium Refunds in Response to COVID-19

by Perr&Knight

On April 13, 2020, the California Department of Insurance (“CDI”) issued a Bulletin ordering the refund of premium to drivers and businesses affected by the COVID-19 emergency. The implications of the Bulletin are complex and require consideration of various aspects of an insurer’s business model. Perr&Knight is having discussions with the staff at the CDI regarding their expectations for compliance with the Bulletin. We have extensive experience with rate, rule and form filings in California as we submit more filings to the CDI than any other consulting firm and will be assisting insurers with complying with the CDI requirements to ensure that the appropriate adjustments are made for the change in risk and/or reduction in exposure.
The Bulletin requires action of all companies who write the following lines of business in California:

  • Private passenger automobile insurance
  • Commercial automobile insurance
  • Workers’ compensation insurance
  • Commercial multiple peril insurance
  • Commercial liability insurance
  • Medical malpractice insurance
  • Any other line of coverage where the measures of risk have become substantially overstated as a result of the pandemic.

The following is required of each California insurer writing the lines above:

  1. By June 12, 2020, report the following information to the CDI:

a. An explanation and justification for the amount and duration of any premium refund, and how those measures reflect the actual or expected reduction of exposure to loss.

b. Monthly and overall California-specific totals for the following:

i. Percentage of refund applied,
ii. Aggregate premium prior to, and subject to, application of refund,
iii. Aggregate premium refund,
iv. Average premium before and after refund,
v. Average percentage of refund, applied to each policyholder,
vi. Number of in-force policies, and
vii. Number of policyholders receiving refund.

  1. By August 11, 2020:

a. Provide each affected policyholder, if applicable, with a notification of the amount of the refund, a check, premium credit, reduction, return of premium, or other appropriate premium adjustment.

b. Provide an explanation of the basis for the adjustment, including a description of the policy period that was the basis of the premium refund and any changes to the classification or exposure basis of the affected policyholder.

c. Offer each insured the opportunity to provide their individual actual or estimated experience. For automobile policies, this includes an invitation to provide updated mileage estimates as appropriate.

Perr&Knight is available to discuss any questions or unique situations with the CDI on your behalf. We can also provide information on what other companies have done, to the extent this information is publicly available in California or other states. Finally, we can prepare and submit your required report to the California DOI.

We expect that other states may issue similar bulletins. If there is anything that Perr&Knight can do to assist your company in California or any other state, please complete our contact form.

Auto Accidents Drop Dramatically with COVID-19 Stay-At-Home Order

by Brett Horoff

Authors:  Brett Horoff, ACAS, ASA, MAAA, Director, Consulting Services, Dee Dee Mays, FCAS, MAAA Principal and Chief Actuary, and Denise Farnan, ACAS, MAAA Principal and Consulting Actuary.
To control the spread of COVID-19, many states have issued Stay-At-Home[1] orders for non-essential workers, resulting in a large portion of the workforce working from home and many businesses temporarily closing. Schools have also been forced to close or have moved to online solutions for classes. These changes have brought a significant drop in the number of miles driven by each household and the volume of the traffic on the roads. With fewer miles being driven and a decrease in traffic density, the number of auto accidents has decreased.
According to the Public Policy Institute of California, essential workers are one-third to one-half of the California labor force. The definition of essential workers varies across the state. It includes sectors such as healthcare and public health, emergency services, food and agriculture, energy, water and wastewater treatment, transportation and logistics, communication and technology, government operations, critical manufacturing, hazard materials, financial services, chemicals and defense industries. Outside of these sectors, households are no longer commuting to work. There has also been a significant reduction of personal auto use as this is pretty much limited to driving to the grocery store, pharmacy or to pick up takeout food from restaurants.
The average annual miles driven in the U.S. is 13,476[2] or approximately 260 miles per week. For non-essential workers, this could be down to less than 30 miles per week assuming five trips a week that are six miles round trip. This represents an 88.5% reduction in the weekly miles driven for households with nonessential workers from 260 miles per week to 30 miles per week. For households with essential workers, they will also have a reduction in the miles driven per week; however, the essential worker will still be driving to work. Assuming half the average annual miles driven is commuting to work, then an essential worker is driving 130 miles per week to commute to work plus another 30 miles per week for personal use. With these assumptions, they would be seeing a 38.5% reduction in the miles driven per week from 260 miles per week to 160 miles per week. If half the households have essential workers, the reduction in miles driven is 63.5%, which is just an average of the figures for non-essential and essential workers. This is a very rough estimate with simplified assumptions, but it gives you an idea of the impact that the Stay-At-Home orders are having on miles driven.
The number of auto accidents will be directly related to the number of miles driven, so insurance companies should be seeing a significant drop in the number of auto accidents. With fewer vehicles on the road and a decrease in traffic density, there should be fewer auto accidents. The number of reported auto accidents in Los Angeles is down approximately 25% in March 2020 compared to March 2019 based on adjusted data[3] from the City of Los Angeles. The Safer at Home Order was issued by the City of Los Angeles on March 19, 2020, so the full impact on auto accidents is likely to be more than double.
It is still very early to assess the impact that COVID-19 and the impact that Stay-At-Home orders will have on the number of auto accidents.  The definitions of essential workers have been changing over time and the orders could be extended. When the orders are lifted, we may also see a slow return back to the prior driving habits. There are several insurance companies that have already taken action to get the savings from the decrease in auto accidents back to their customers. Allstate has submitted filings this week to state Departments of Insurance for a Shelter-in-Place Payback endorsement that authorizes and facilitates discretionary payments to policyholders. They also had a press release on April 6, 2020 that states their customers will receive more than $600 million as part of this payback. Another insurance company, American Family, announced on the same day that they will return $200 million in premium to their auto customers related to the COVID-19 impact on auto accidents. There also insurance companies with pay-per-mile programs where any savings is automatically passed on to the customer, since the customer pays for each mile driven.
There are a number of filings being made by insurance companies to the state Departments of Insurance to address the impact of COVID-19 on auto accidents. Go Maps has filed to offer personal auto discounts to essential workers and recently unemployed workers in multiple states. Next Insurance has filed to reduce the commercial auto premium for their customers for the month of April in several states. Safe Auto Insurance Company and Elephant Insurance Company have also filed rate reductions related to COVID-19. There are several insurance companies that have filed endorsements lifting the delivery exclusion in personal auto policies during the COVID-19 pandemic in order to provide insurance coverage to the increasing number of people delivering medicine and food.
While several insurance companies are moving fast to pass the savings from a decrease in auto accidents on to their customers, there are consumer groups saying it is not enough. There is much uncertainty right now and the full impact of COVID-19 on auto accident frequency will not be known until the pandemic is over. It is likely that insurance regulators in each state will take a look at the impact of COVID-19 on auto accident frequency and may require the premium savings to be passed on to the consumer.

About Perr&Knight

Perr&Knight is one of the largest providers of State Filing Consulting Services to the insurance industry and is available to help insurance companies with preparing and submitting filings addressing COVID-19’s impact on auto insurance or other lines of business. Our actuaries can help companies estimate the impact of COVID-19 and have assisted companies with preparing and submitting filings related to COVID-19.

Contact us to schedule a consultation.

[1] Also referred to “Shelter in Place” or “Safer at Home” in some municipalities.
[2] Figure is for 2018 and is from the U.S. Department of Transportation Federal Highway Administration.
[3] Data was through March 28, 2020 and was extrapolated to month-end.  It was also adjusted for a reporting lag.

Rate, Rule and Form Filing Activity in Response to COVID-19 Crisis

by Dee Dee Mays

We have all seen the various headlines regarding what companies are doing in response to the COVID-19 Crisis. Many Departments of Insurance (“DOI”s) are encouraging companies to act quickly to provide relief to policyholders during these difficult times. Perr&Knight is closely monitoring the rate, rule and form filings submitted by insurance companies to the DOI in each jurisdiction, to the extent these filings are publicly available.
If you are interested in obtaining additional information on filings related to the COVID-19 crisis, please complete our contact form.
Here are samples of changes included in company filings:

  • Allstate has made two changes:
    • Revising their rules and forms to include an exception to commercial activity exclusions to cover the delivery of food, medicine or other goods while a statewide Emergency Order is in effect related to the COVID-19 virus.
    • Adding a Shelter-in-Place Payback Endorsement to Allstate, Esurance and Encompass personal auto policies. Per the Allstate press release, “…customers will receive a Shelter-in-Place Payback. Most customers will receive 15% of their monthly premium in April and May, totaling more than $600 million.”
  • American Family has announced that they are refunding $50 per insured vehicle to their personal auto policyholders for a total return of approximately $200 million. We have not seen any filings publicly available as of yet.
  • Clear Blue Insurance Company temporarily removed late fee and reinstatement fee surcharges to provide relief to the insureds in their CB Rideshare Commercial Auto program that covers transportation network company drivers.
  • Erie has filed a new Additional Payment, Gift Card and Gift Certificate Reimbursement Coverage. This provides reimbursement for the remaining balance of an unexpired local business gift card or gift certificate when the local business has permanently gone out of business. The coverage will be added to all ErieSecure Home, ErieSecure Condo and ErieSecure Tenant policies covering a primary residence, at no additional charge.
  • Germantown Insurance Company is notifying homeowners policyholders with payment issues to arrange for delayed billing or switch to an installment payment plan. They have filed changes to their underwriting scorecard to avoid penalizing policyholders who make these changes.
  • Silicon Valley-based insurance company Go announced that it is offering a 50% discount on auto insurance to all Essential Workers in Texas who are on the front lines of the COVID-19 crisis. See the press release at https://www.goclub.com/get.
  • National American Insurance Company has added new Contractor and Subcontract Epidemic Bond Riders in response to the impact of COVID-19. These riders amend a surety bond to allow for equitable adjustments of contractual obligations if work is delayed, disrupted, suspended, or otherwise impacted as a direct or indirect result of any virus, disease, contagion, including but not limited to COVID-19.
  • Next Insurance has submitted filings to implement a temporary relief measure regarding COVID-19 for insureds in their Commercial Auto and Liability (Errors and Omissions, Premises and Operations, etc.) programs. The Company’s intent is to reduce 25% of April’s 2020 premium for all insureds who purchased a policy prior to March 1, 2020.
  • Utica National group has expanded the eligibility for Commercial Auto lay-up credits to all risks/vehicle types. The expanded eligibility is intended for businesses that plan to take vehicles out of service due to loss or reduction in business due to the COVID-19 pandemic.
  • Several companies are filing COVID-19 related leave of absence endorsements for their medical malpractice policies to help their insureds whose employment may be affected due to COVID-19 related lay-offs, office closures, and illness, among other things.

If there is anything that Perr&Knight can do to assist your company with any filings, please complete our contact form at https://www.perrknight.comcontact/.

A Smarter, More Efficient Way to Manage Adoption Filings

by Karen Barrett Daley

Tracking and managing changes to bureau material has long been a time-draining process for property casualty insurance company staff. When we released Bureau Monitor, a subscription service housed within our StateFilings.com system, our aim was to make our clients aware immediately if there were updates required for their bureau based products. By centralizing loss cost, rule and form circulars for all bureaus and lines of business in a single location and then generating automatic notifications explaining the impact on our clients, the system was able to relieve in-house compliance teams from managing the minutiae of circular tracking. It also provided a crucial first line of defense against compliance violations.
We’ve now taken this process one step further. By combining our useful bureau monitoring service with the filing capabilities built into StateFilings.com, we’re launching our newest service: Bureau Maintenance. It’s a single, automated solution for keeping your state filings current.

How Bureau Maintenance Works

Our team of filing experts monitor the circulars impacting loss costs, rules and forms released by the various rating bureaus, including the Insurance Services Office (“ISO”) and the National Council on Compensation Insurance (“NCCI”). We publish these circulars to Bureau Monitor, which then generates a notification if your company is required to file an update to your product based on your specific adoption profile. Using Perr&Knight’s StateFilings.com platform, our state filings experts will submit the change on your behalf, eliminating your risk of falling behind or slipping out of compliance. Using an online dashboard, you’ll be able to see in real-time which adoptions have been filed and which are pending submission.

Why automate your state filings?

As technology becomes faster, smarter and more secure, it makes sense to outsource to machines the tasks that require lower levels of human discernment. Standard bureau adoption filings are an excellent function for automation because the process requires the management of numerous minor but important details, instead of critical decision-making, which is better suited for people. This approach frees up time and attention for your teams to focus on more complex product compliance tasks. Bureau Maintenance is simply that—maintaining bureau-based products in real-time, rather than being forced to play major catch up down the road.
Read more: Expert tips to speed up state filing approvals.

Updates that matter to you

Because your Bureau Maintenance profile will be unique to your company, you’ll be alerted to only those filing requirements that apply to you. Based on the lines of business you follow, your adoption status, and programs in the states where you operate, you’ll know exactly which circulars need to be adopted via a state filing. This eliminates the need for manual scrutiny of each published circular by your staff.
Even for companies that don’t seem overwhelmed by filing updates, Bureau Maintenance can protect you from the risk of non-compliance. For example, affiliating with an auto-adopt or file-on-behalf status will likely minimize your number of filings. However, in cases of the states that prohibit auto-adoption, you are required to pay attention and submit your filings accordingly. Bureau Maintenance will ensure that nothing falls between the cracks.  On other hand, if you have the opposite bureau affiliation profile — i.e. you have adopted loss costs, rules or forms from a particular bureau at single point in time and don’t intend to make updates— you could still be on the hook for mandatory changes if the bureau adjusts its materials based on regulatory changes. Once again, Bureau Maintenance will make sure that you keep current and compliant.
Read more: How to streamline bureau monitoring.

Maximize your resources

We deliberately created a competitive pricing structure for Bureau Maintenance because this ancillary service is designed to work in conjunction with your in-house teams. As a result, offloading the time-consuming tasks to automated software will increase the efficiency of your human capital on the revenue-generating tasks that forward your business objectives and competitive advantage.
Bureau Maintenance takes away the final piece of worry regarding the management of bureau adoption state filings. By letting dedicated software pay non-stop attention to bureau updates that impact your filings, you reduce the risk of overloading your internal teams or slipping into non-compliance. In an era where more and more businesses are capitalizing on the advantages of improved technology, automating these simple tasks just makes sense.

Contact Perr&Knight today to learn more about how Bureau Maintenance can eliminate your state filings and bureau monitoring headaches.

How to Make the Most of Your Software Evaluation Period

by Dana Pagliarulo

Determining whether a new software system will meet your company’s needs may seem like a gamble.

  • How can you tell if this new product will really streamline your workflow?
  • Will it actually increase process efficiency?
  • Can you guarantee that it will add value to your organization?

Vendors understand that you’ll need to get your hands on the product before you can make an informed decision. Luckily, some offer a time-boxed “trial” period where you and your team have a chance to apply the software to your workflow and obtain a much sharper perspective. By taking full advantage of this evaluation period, you’ll be able to determine whether or not the solution will work for you.
Here’s how to make the most of your evaluation period before investing in full.

Take time to prepare. Don’t just dive in.

After identifying software that seemingly checks all the boxes, it’s tempting to want to begin trying it immediately. However, preparation is a crucial step that lays the foundation for an accurate assessment. Here are some less obvious things to do in order to be thoroughly ready to analyze the new product:
Develop test cases: Include both standard transactions and anomalous outliers, as well as things that are on your team’s “wish list.” Identify and document an array of scenarios such as initiating records from scratch, conducting tests on reporting at the beginning/middle/end of the workflow, and interfacing/importing external records.
Use existing data: If your prospective software will replace an existing system, use your trial period to evaluate how your new solution works with your existing data. Your IT department can provide your vendor with a detailed list of the types of data objects you’ll need to manage which can be used to populate the new system with your current data set. Even if you must scrub some of your data before sharing with the vendor, the more you can provide, the more accurately they can assess your needs. If you were to license the software, using the data from the evaluation period may be used for your implementation of the product.
Gather requirements from your legacy system: Your current system was built on set of requirements and design documents. If you want your replacement system to mimic those assumptions, share these details with your vendor. This information will help them determine if the system will meet your needs as-is or if it will require customization.

Treat it seriously, like a project

Though your evaluation period might not cost anything upfront, there is a very real opportunity cost if the software ultimately doesn’t deliver or if you dismiss a quality product without sufficient review. Therefore, treat your software evaluation period like a mini-project. Dedicate the same level of attention as if your company had already invested capital.
Create a one-page “mini” charter that defines important specs such as: What is the purpose of this project? What is its perceived benefit? Who is assigned to work on it? Who ultimately “owns” it? What are the roles and responsibilities of each individual or team? What is the scope of the project? Developing an official “work order” enables you to obtain signoff for teams to dedicate their time to evaluating the software, thus increasing the chance that all parties will take the evaluation period seriously.
As part of defining the scope of this mini-project, don’t hesitate to bring in an outside subject matter expert who can springboard you into software usage to accomplish your goals straight away. Their detailed answers about your specific questions can save you plenty of time that may otherwise be wasted on back-and-forth between you and your vendor.
Finally, be sure to hit your dates. All projects have a timeline and this one should be no different. Work with your vendor to establish an achievable schedule that will keep your teams on track. During evaluation periods for our own state filings software, StateFilings.com, we create a week-by-week plan that outlines what we will accomplish, from training to full implementation. A timeline creates a necessary structure that keeps everyone on track and enables teams to identify any hiccups early on.

Ask plenty of questions

Don’t make assumptions about what the software may or may not be able to do. If it is important to your particular process and the answer is not apparent, ask! Be specific about what you need. By describing your workflow requirements in detail, the vendor can train you on how to perform your desired task, explain how the software handles the requirement in a more efficient manner, or determine that the software may need further customization to meet your needs. Don’t be afraid to ask questions that may seem obvious. It’s faster and easier to confirm that your needs will be met than to worry whether or not the software can perform the basics.
Additionally, feel free to ask the vendor to share the product road map with you, which will detail upcoming features. This might answer some of your questions about functionality and may reveal opportunities for you to improve your own workflow when new features are launched.

Determine how close you are to going live

If you present your vendor with a full set of current data, going live may be as easy as “flipping a switch” after signing the licensing agreement. If the data is only a partial set, or requires additional software customization, fully operational real-world use may take longer. Work with your internal teams and vendor to determine what functionality is mission-critical and what can be postponed until after launch. Strategic configuration during the evaluation period can minimize implementation delays. Perr&Knight’s StateFilings.com evaluation period has resulted in many near-immediate go-live implementations for customers.

Help your vendor help you

Your vendor wants to do more than just sell you a product. Ultimately, they want to solve your problem. Make sure that your teams are not impeding the process. When the vendor asks for information, keep turnaround time to a minimum. Establish a regular meeting schedule (once a week is preferable, but bi-weekly meetings can suffice) and keep communication clear and frequent. As mentioned above, if you have questions, ask them ASAP. Finally, if it becomes clear that the software solution is not what you expected and will not meet your needs, let your vendor know immediately. Instead of wasting everyone’s time, it’s better to move on.
The goal of your software evaluation period is to reduce surprises further down the line. Pressure-testing the system from all angles will provide a clear perspective on what the software can and cannot do. By taking the trial period as seriously as you would any other project, you stand the best chance of achieving your ultimate goal: implementing a smarter solution for your organization.

Want to know if your proposed insurance software will actually perform? Our insurance experts can help you better capitalize on your evaluation period.

Entering the Workers Compensation Line of Business: What You Need to Know

by Michelle Freitag

Workers Compensation (“WC”) filing activity is increasing as more and more insurance companies and InsurTech providers roll out WC products to round out their insurance product offerings. However, many of these companies possess only a limited understanding of the scope of what is involved in WC insurance product development. In the rush to market, they overlook important requirements that negatively impact the state filings process and stall their product’s release.
Before your company proceeds full steam ahead with your WC product, here are some important considerations to keep in mind.

Multiple rating bureaus and their products

Before an insurance company can begin writing WC they must affiliate with the appropriate rating bureau. The National Council on Compensation Insurance, Inc. (“NCCI”) is the designated statistical agent and rating bureau in 37 jurisdictions.  The remaining 14 jurisdictions have either licensed an independent state-specific rating bureau or provide workers compensation through a monopolistic state fund.  Companies will need to affiliate with the appropriate rating bureau before filing their product with a state.
Your team must be aware of the product offerings of the various bureaus in order to ensure you file everything you need. In most jurisdictions, the WC core product is already filed on your behalf and you are tasked with providing specific supplemental information. However, the amount of supplementation varies by state. It’s important to know exactly what information you’ll be responsible for submitting.  For example, schedule rating is allowed in Connecticut and is filed on the company’s behalf by NCCI in that state.  NCCI is also the rating bureau in Illinois and Illinois allows for schedule rating, but it’s not filed on the company’s behalf by NCCI.  So, if a Company wants to use schedule rating in Illinois, they must specifically file a schedule rating plan.

Creating a countrywide product is complicated

Many insurance companies think that they can develop a product that meets the requirements for a handful of states, then simply expand coverage to include other states. When it comes to WC, state filings just aren’t that simple. With so many state nuances that require careful navigation, it’s virtually impossible to create a countrywide product that will satisfy every jurisdiction.
Some jurisdictions have required mandatory offerings (ex. risk control services and small deductibles) that may or may not need to be filed with the state. Some states don’t allow schedule rating for WC. Others require drug-free workplace program credits. Mistakenly thinking you can use the same product features everywhere will slow down your state filings process.
Bringing a product to market is never as easy as it seems, particularly when it comes to WC. Unforeseen delays and close regulatory scrutiny are simply par for the course. Perr&Knight has assisted numerous clients in getting their WC products to market. We are knowledgeable about each state’s requirements, limitations and restrictions. For more information about how we can help you achieve successful and streamlined Workers’ Compensation insurance product development, contact our offices today.

California Personal Auto Filings: Avoiding the Pitfalls

by Dee Dee Mays

Any companies with a personal auto program in California who haven’t submitted a rate or class plan filing within the last couple of years may be in for a surprise when they submit their next filing.
Personal auto filings have been coming under increased scrutiny by the California Department of Insurance (“the Department”) as the state has taken a stricter view of the existing personal auto regulations. This is likely in part due to the pressure from Consumer Groups to ensure that the premiums charged to consumers are fair and are not excessive.
Most notably, ProPublica published a report stating that poor and minority communities face significantly higher premiums than their counterparts in more affluent neighborhoods. Although the validity of the results has been questioned, the ProPublica report has brought this issue to the forefront, which has caused the Department to take a closer look at zip code rating. Other Consumer Groups have also raised concerns about other items in personal auto filings. All of this combined with the Department’s internal review has resulted in changes that will have a material impact on personal auto filings in California. Many companies are learning this the hard way by submitting California auto filings without taking into consideration the latest changes made by the Department.

Unfamiliarity with Changes Can Result in Undesirable Revisions

If your company is not aware of the latest requirements for California auto filings, you may be required to make significant, unexpected changes during the filing review process. These could include costly revisions such as reducing rate levels below proposed rate levels; reducing existing fees used with the program; revising rates charged by zip code without consideration of the competitor information; revising class plan factors to be consistent with the Department’s request; or paying for a consumer group’s intervention on the filing.
In order to make sure that possible changes required during the filing review will be in your company’s best interest, companies should review the pros and cons that could result from submitting a filing. 

Consumer Group Intervention

A review of California rate change filings shows that many companies file rate changes of +6.9%. This is due to the regulation stating that the commissioner must hold a rate hearing upon timely request by a Consumer Group for a rate change that exceeds +7% in a personal lines filing. However, filing a rate change less than +7% will not prevent a consumer group from intervening in the filing if they think the proposed rates are excessive or unfairly discriminatory, even if the filing is for a proposed rate decrease. Also, the commissioner at his discretion can decide that a rate hearing is necessary for any rate change including ones below +6.9%. That said, the Department does its best to mediate between all parties involved in the filing so that a rate hearing can be avoided. For rate increase filings at or above the +7% threshold, the Department and the Consumer Group must be satisfied with the support for the proposed rate change to avoid a rate hearing.
The following link contains a list by year of the filings that have been intervened on by consumer groups, along with the cost that was paid by the insurance company.

Beware of the Recent Change in the Filing Review Process

One of the biggest changes that has occurred is with the Frequency and Severity Band assignments by zip code. Even if you are not proposing changes to these class plan factors, the Department will require a review of them, which is likely to result in needed changes. This review will need to be done strictly in accordance with regulations, including the requirements for use of an alternative dataset for any zip codes that lack credibility. Companies should also be aware that the Department has been relying more heavily on the indications from the sequential analysis and the proposed factors need to be consistent with the indications for all class plan factors, including class plan factors where the company may not have been intending to propose any changes.
Companies should also take note of the following items regarding the review of rate filings:

  • All rate changes must be within the range of allowable changes for each coverage;
  • Calendar year or calendar quarter data derived from the development triangles should be consistent with the corresponding data in the trend exhibits or it will be questioned by the Department; and
  • Fee amounts charged to policyholders may need to be supported based on underlying expenses even if no changes are proposed, particularly if the fees are high.

The above are just some of the most important items when it comes to a California personal auto rate and class plan filing. As always, it is important to stay abreast of the latest changes in the California auto filings review process.

What You Don’t Know Might Hurt You

In complex jurisdictions like California, it’s smart to partner with experts who can provide insurance filing support that helps you carefully navigate the regulatory environment. For example, the Department regulations have been amended to reflect the new 21% federal corporate income tax rate, effectively lowering the maximum allowable rates for all P&C lines subject to Proposition 103. Excessive rates may not remain in effect under California regulations. If your company needs to take a rate decrease, you should be filing one. The Department does annual reviews of the financial results of all companies by line of business and has required companies to submit filings supporting that their filed rates are not excessive.
To assist you with personal auto programs and avoid the pitfalls of filing in California, work with experienced consulting actuaries who have a complete understanding of the Department’s latest positions and whose insurance filings support service includes an active dialog with the Department. Look for partners who have assisted other insurance companies in achieving the best possible results on filings that have been intervened on by consumers groups.

Knowing what to expect in California can put you ahead of the game. Perr&Knight can help.

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

by Michael Covert

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

Know Your Filing Requirements

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

Actuarial Transmittals

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

Actuarial Support Required

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

Responding to Department Objections

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

Speed-to-Market Tips for New Product Development

by Karen Barrett Daley

Speed to market is always important when it comes to introducing new insurance products. In general, all companies require efficient insurance product development, but in certain cases it’s non-negotiable, such as when a company wants to enter into an emerging market and quickly gain market share, when program business is being moved between carriers and they can’t risk a lapse in coverage, or if an existing carrier is trying to accommodate a large account that has an immediate additional coverage need.
As decades-long providers of insurance product consulting for hundreds of insurance companies across every jurisdiction, we have determined the actions that can significantly impact the speed at which a new product is rolled out.

Here are some important tips to accelerate new product development:

Know your market.

Understanding your market means a couple of things. First, know who your competitors are. Examine who’s writing, what they’re covering and charging, their profitability and their market share. Next, get to know the environment from a regulatory standpoint. Look closely at how the Departments of Insurance (DOIs) treat the line of business in the states in which you will be writing.

Confirm that your company is licensed to write the new product.

Sounds obvious, but plenty of insurance companies rush past this step and pay for it later. Amending your certificate of authority is a lengthy process and, as such, needs to be addressed early on by someone familiar with the company licensing process. Double check first, so as not to waste time and resources on stalled product development.

Flesh out your coverage and check for consistency.

Once you have conducted research and developed product concepts, draft the policy forms, then calculate the rates and premium that will be charged. Make sure your form contains clear, unambiguous and, if possible, tested language, your rates balance competitiveness and adequacy, and your rates and forms are consistent, i.e. that they make sense together.

Ensure your product is compliant in the states you want to write.

It is unlikely that all states will allow you to write the exact product you want.  Rather, you will likely need to modify the product, at least a little bit, in each state in which you write.  Before filing or implementing your product, conduct a thorough compliance review on both rates and forms, making adjustments as necessary. Shortcutting this crucial step in the product development process will likely result in delays, rejections or time-consuming questions from DOIs.

Be smart about your state filings.

Before starting the mechanics of the filing submissions, you should strategize about how to optimize the outcome of your state filings.  Learn about and consider incorporating any rating flexibility that is available in your states to create a more robust rating manual. Take advantage of confidentiality rules to prevent competitors from seeing every aspect of your rating model or underlying support. Determine the priority order of filing submissions by considering DOI turn-around times, filing laws, filing support requirements, desired launch dates and projected premiums by state.
When it comes to releasing a new product quickly, the single most important rule is this: approach insurance product development in an organized manner. Cutting corners will almost always result in re-work and undue delays on the back-end.
Product development is a process that requires expertise in many different insurance-related specialties and extensive industry knowledge. If your in-house teams are not equipped to handle the time-consuming specifics or manage the critical details, partner with an insurance product consulting firm whose industry, marketplace and compliance experience can get your product to market quickly and cost-effectively.

To learn more about how Perr&Knight helps insurance companies release new products intelligently, download our Product Expansion Services brochure.