Form filings: what regulators check

What counts as a form

The handbook uses "policy form" broadly. It includes policies, certificates, applications, riders, declarations or information pages, amendments and endorsements, as well as notices, disclosures, outlines of coverage and other forms required for use with a policy. In some cases it extends to advertising material.

In practice a P&C form filing commonly contains some combination of:

• the base policy or coverage form;
• endorsements that add, remove or modify coverage, including state amendatory endorsements;
• declarations or information pages, often with variable fields;
• applications and supplemental applications;
• required notices and disclosures, such as cancellation, nonrenewal or privacy notices;
• a form list or manual rule that tells agents and underwriters when each form applies.

Which of these must be filed, and whether they need prior approval or only filing, depends on the state, the line and sometimes whether the business is personal or commercial.

What form reviewers check

The handbook describes the core of policy form review as confirming that the product meets the state's definition of insurance, that the insurer is licensed for that line, and that the forms comply with the applicable laws and regulations, including any readability requirements. Reviews also confirm that benefits are delivered to the policyholder, that provisions required by law are included, and that provisions prohibited by law are excluded.

Typical areas of focus include:

• Mandated provisions. Cancellation and nonrenewal terms and notice periods, appraisal, suit against the insurer, loss payment, and any coverages a state requires to be included or offered.
• Prohibited or restricted provisions. Exclusions or conditions that conflict with statute, case law or bulletins, and provisions that reduce mandated coverage.
• Definitions. Defined terms that are used consistently and do not narrow coverage in ways the state does not allow.
• Consistency across the program. Endorsements that reference the correct base form edition, declarations that show the coverages and limits the forms describe, and manual rules that match the forms.
• Consistency with the rate filing. New coverages or options that appear in the forms also appear, with a rate or charge, in the rating manual.

Readability

Several states impose readability standards on policy forms, often through a combination of a numerical test and layout requirements. The scope, the test and the exemptions vary by state.

Florida's section 627.4145 is a detailed example. For a policy form or endorsement to be deemed readable, it must achieve a minimum score of 45 on the Flesch reading ease test (or an equivalent score on an approved comparable test), use layout and spacing that separate paragraphs, have captions that stand out from the text, avoid unnecessarily long or obscure words and sentences, give no undue prominence to any portion of the text, and include a table of contents or index if the policy has more than 3,000 words or more than three pages. The statute sets out how the score is calculated:

Flesch score = 206.835 - 1.015 x (words / sentences) - 84.6 x (syllables / words)

It also excludes certain text from the count, including defined words and policy language required by law that the insurer identifies and certifies, and it requires a filing subject to the section to include a certification signed by an officer of the insurer. The Office of Insurance Regulation may authorize a lower score in specified circumstances.

Where a state has a numerical test, file the score and the certification it requires, and keep the scoring work papers. Where it does not, reviewers can still object to language they consider unclear.

Comparisons and redlines

When a form replaces or revises a previously approved form, reviewers want to see exactly what changed. New Hampshire's Ins 5001.03 requires a side-by-side comparison that clearly shows the changes, additions or deletions for each amended form, filed on the SERFF form schedule along with the final copy. Many states have similar expectations through their checklists.

A good comparison package:

• identifies the form being replaced by number, edition and the filing in which it was approved;
• shows every change, including formatting changes that move or re-caption provisions;
• includes a short explanation of each change and whether it broadens, restricts or clarifies coverage.

Coverage reductions draw the most attention, and some states have notice requirements for policyholders whose coverage is reduced at renewal.

Advisory organization forms and independent forms

Many insurers use standard forms developed by advisory organizations such as ISO and AAIS. The handbook notes that advisory organizations are authorized to make filings for or on behalf of insurers, that in most states member insurers may authorize them to do so, and that an insurer may respond to an advisory filing by implementing it at another time, not implementing it, or implementing it with modifications.

An insurer using advisory forms usually files to adopt them by reference and then files its own company-specific endorsements. Independent forms, written by the insurer, need a full review. Reviewers pay close attention to company endorsements that modify advisory forms, because the interaction between the two is where unintended coverage changes tend to hide. See advisory organizations and loss costs for how adoption by reference works on the rate side.

Form numbers and edition dates

Every form needs an identifier that distinguishes it from the company's other forms and versions. New Hampshire's Ins 5001.06 is representative: each form must carry a form number made of numbers, letters or both, sufficient to distinguish it from all other forms the company uses, placed on every page, and a replaced form must be resubmitted with a new form number, a new edition date, or both.

Consistent numbering matters beyond approval. Declarations, form lists and endorsements cite forms by number and edition, so an edition change on one form often requires updates to others in the program.

Variable language and statements of variability

Forms often contain text that changes by policy, such as limits, names, dates, optional wording or company identifiers. States generally require variable text to be marked and explained so the reviewer can approve the full range of what may be issued. New Hampshire requires all variable language to be identified with brackets and accompanied by a narrative statement describing the full range of variability, attached to the SERFF supporting documentation or shown on the corresponding manual page. Variable language that changes the terms and conditions of coverage must also be explained in that narrative.

A statement of variability should list each bracketed item in the order it appears, describe the permitted values or alternative wording, and confirm that variable text will not be used to change coverage outside what was filed. The approval covers the range described, so issuing wording outside it puts the company in the position of using language the state never reviewed.

Common reasons for objections

• A provision conflicts with a state statute or omits a mandated provision.
• Cancellation, nonrenewal or notice language does not match state requirements.
• The form fails the state's readability standard or the score and certification are missing.
• No comparison to the prior approved form, or a comparison that omits changes.
• Brackets without a statement of variability, or a statement that allows open-ended changes.
• Form numbers or edition dates that do not distinguish the new version.
• New coverages in the forms with no corresponding rate or rule filing.
• Endorsements that reference the wrong base form edition.

For how objections are raised and answered in SERFF, see SERFF objections.