Insurance filing glossary

A

Accident year

A way of grouping losses by the date the loss occurred, regardless of when it was reported or paid. Most property and casualty ratemaking data is organized by accident year, policy year or report year rather than by calendar year.

Actuarial memorandum

The narrative document in a rate filing that explains the data, methods, assumptions and selections behind the proposed rates, and how the selected change relates to the indication. See Actuarial memorandum.

Advisory organization

An organization that assists insurers with ratemaking-related activities, such as collecting statistics and developing prospective loss costs, rating rules and policy forms for its members or subscribers. ISO, AAIS, NCCI and the Surety and Fidelity Association of America are examples. Advisory organizations generally may not publish final rates that include expense and profit loadings. See Advisory organizations and loss costs.

Allocated loss adjustment expense (ALAE)

Loss adjustment expense that can be assigned to a specific claim, such as defense attorney fees. In statutory reporting the closely related category is defense and cost containment (DCC).

B

Base rate

The rate for a base class or base risk, to which rating factors are applied to produce the rate for a particular risk.

C

Calendar year

A way of grouping transactions by the period in which they were recorded, regardless of when the underlying loss occurred or policy was written. Annual statement data is mostly on a calendar year basis.

Combination filing

A filing that changes more than one of rates, rules and forms at once, such as a new endorsement together with the rate and rule that price it. See Rate, rule and form filings.

Contingency provision

A provision in the rate for the risk that actual losses and expenses will exceed those expected, separate from the profit provision.

Credibility

The weight given to a body of experience when estimating future costs, with the remaining weight given to a complement such as countrywide, industry or advisory data. Credibility increases with the volume and stability of the data.

D

Deemer

A provision under which a filing is treated as approved, or as meeting legal requirements, if the department does not disapprove it within a set waiting period. Whether a deemer applies, and how the clock starts and stops, depends on state law. See Prior approval, file-and-use and use-and-file.

Deviation

A departure from an advisory organization's loss costs, rates or rules, filed by an insurer. Deviations can be uniform percentages or changes to classes, factors or rating steps, and should be explained in the filing.

Disposition

The department's final action on a filing as recorded in SERFF, such as approved, filed, acknowledged, disapproved, withdrawn or rejected. Disposition terms and their meaning vary by state.

E

Earned premium

The portion of written premium for which the coverage period has already elapsed. Earned premium is the usual denominator for loss ratios in a rate indication.

Expense provision

The portion of the rate that covers the insurer's expenses, such as commissions and other acquisition costs, general expenses, taxes, licenses and fees. It is commonly split into fixed and variable components. Model rating laws require expense provisions to reflect the insurer's operating methods and anticipated expenses.

Experience rating

A rating plan that adjusts an individual policyholder's premium based on its own past loss experience compared with that expected for its classification.

Exposure

The basic unit of risk that underlies the premium, such as a car-year, a house-year or $100 of payroll.

F

File and use

A rate regulation system under which rates may be used once filed, or after a short period, without specific approval; the department may disapprove later. See Prior approval, file-and-use and use-and-file.

Filing fee

A fee a state charges for reviewing a filing, set by state law. Many states require filing fees to be paid through SERFF by electronic funds transfer; some charge no fee for rate or form filings. Separate from the NAIC's SERFF transaction fee.

Flex rating

A rate regulation system under which prior approval is required only for changes outside a percentage band set in state law.

Form filing

A filing that establishes or changes policy language: policy forms, endorsements, declarations, applications, notices and disclosures. See Form filings.

G

General Instructions

A state's SERFF instructions that apply to all of its filings, covering format, required attachments, filing descriptions, state-specific fields and fees. They sit alongside the more specific Filing Rules for each type of insurance and filing type. See State filing requirements and checklists.

I

Increased limits factor (ILF)

A factor that prices a policy limit relative to a basic limit, which has a factor of 1.00. ILFs are developed from the distribution of claim sizes and are used heavily in liability lines.

Indication

See rate indication.

L

Loss adjustment expense (LAE)

The cost of investigating and settling claims. It is often split into allocated (claim-specific) and unallocated (general claims operation) components.

Loss cost

The portion of the rate that covers expected losses, and often allocated loss adjustment expense, without expense or profit loadings. Advisory organizations file prospective loss costs for insurers to use with their own loss cost multipliers.

Loss cost multiplier (LCM)

A factor an insurer applies to advisory loss costs to add its own expense and profit provisions, and any adjustment it makes to the loss costs themselves, producing its final rates.

Loss development

The change in the estimated value of losses for a given period as claims are reported, reserved and paid over time. Loss development factors, usually estimated from loss triangles, project immature losses to their ultimate value.

Loss ratio

Losses, with or without loss adjustment expense, divided by premium. A projected loss ratio compared with a permissible or target loss ratio is the basis of the loss ratio method of rate indication.

N

No file (open competition)

A rate regulation system under which rates do not have to be filed with or approved by the department, though the insurer must keep supporting records available to the regulator.

O

Objection

A written question, deficiency notice or request for information from a state reviewer during review of a filing, sent through SERFF and requiring a response. See SERFF objections.

Off-balance

An adjustment to the base rate that offsets the change in average premium caused by revising rating factors, so the overall premium change equals the intended change.

On-level premium

Historical premium restated as if current rates had been in effect throughout the experience period, so that historical loss ratios are measured against today's rate level.

P

Prior approval

A rate regulation system under which rates must be filed with and approved by the department before use. Approval may come through a deemer provision. See Prior approval, file-and-use and use-and-file.

Product Coding Matrix (PCM)

The NAIC's uniform list of type of insurance and sub-type of insurance codes and descriptions used to classify product filings in SERFF. Updates take effect January 1.

Pure premium

Losses, often including loss adjustment expense, per unit of exposure, before expense and profit loadings.

R

Rate filing

A filing that establishes or changes rates, rating factors, minimum premiums or loss cost multipliers, supported by an actuarial memorandum and exhibits. See Rate, rule and form filings and Rate filing exhibits.

Rate indication

The rate change the experience and assumptions support, before management selects the change to file. Filings usually show the indication alongside the selected change and explain any difference.

Rate standards

The legal tests rates must meet. In almost every state, rates must not be excessive, inadequate or unfairly discriminatory.

Review Standards Checklist

An NAIC-designed checklist, by line of business, listing the statutes, regulations, bulletins and case law a state applies to a product. Some states require the checklist as a filing attachment.

Rule filing

A filing that changes the manual rules governing how rates apply, such as eligibility, classification, territory definitions, discounts and fees. See Rate, rule and form filings.

S

SERFF

The System for Electronic Rates & Forms Filing, the NAIC's application for submitting and reviewing rate, rule and form filings. See What is SERFF?.

SERFF Filing Access (SFA)

The public interface for viewing filings that participating states have made public. Each state decides what it publishes and when.

SERFF tracking number

The unique identifier SERFF assigns to each filing. It is the most reliable way to reference a filing across company, state and public records.

Sub-TOI

Sub-type of insurance: the product-level code within a type of insurance in the Product Coding Matrix, such as 04.0003 Owner Occupied Homeowners. SERFF allows one sub-TOI per filing, with ".0000" combinations codes for filings that span several.

Supporting documentation

The SERFF schedule for attachments that support a filing without being filed rates, rules or forms: memoranda, exhibits, checklists, certifications and comparisons.

T

TOI

Type of insurance: the line-level code in the Product Coding Matrix, such as 04.0 Homeowners or 19.0 Personal Auto. Each SERFF filing carries one TOI.

Trend

An adjustment that projects historical losses, premiums or exposures to the level expected during the period the proposed rates will be in effect. Loss trend reflects changes in claim frequency and severity; premium trend reflects changes in average premium from shifts in the insured mix.

U

Unallocated loss adjustment expense (ULAE)

Loss adjustment expense that cannot be assigned to a specific claim, such as the general cost of running a claims department.

Unfairly discriminatory

A rate is unfairly discriminatory when price differences between risks are not reasonably explained by differences in expected costs, or when they rely on criteria the state prohibits.

Use and file

A rate regulation system under which rates may be used before filing, with the filing due within a period set by state law.

W

Waiting period

The period a filing must be on file before it can take effect under a prior approval or similar law, during which the department can disapprove it. The length is set by state law and may be extendable.

Withdrawal

Either the filer's withdrawal of a pending filing before the department acts, recorded as the filing's disposition, or a filing that removes a product, form or rate from use.

Written premium

Premium on policies written or renewed during a period, regardless of how much has been earned.