Prior approval, file-and-use and use-and-file

Where rating laws come from

According to the NAIC handbook, every state legislature has enacted a property and casualty rating law except Illinois, which has none. Many of these laws follow NAIC models:

• the Property and Casualty Model Rating Law (Prior Approval Version), Guideline #1780;
• the Property and Casualty Model Rating Law (File and Use Version), Guideline #1775;
• the Property and Casualty Commercial Rate and Policy Form Model Law, Model #777.

Others still descend from the All-Industry Bills adopted after the McCarran-Ferguson Act in the 1940s. Departments then implement the statute through regulations, bulletins and filing instructions, which is where most of the operational detail lives.

Almost all of these laws share the same rate standard: rates must not be excessive, inadequate or unfairly discriminatory. The regulatory system decides when and how the department tests a rate against that standard, not whether the standard applies.

The main systems

Prior approval

Rates must be filed with and approved by the department before they can be used. Approval can be explicit or can come through a deemer provision (below). Prior approval gives the department the most leverage before a rate is in the market, and it is where objections most directly control the effective date.

File and use

Rates can be used once they are filed, or after a short specified period, without specific approval. The department keeps the right to disapprove later. The NAIC handbook notes that subsequent disapproval is usually prospective only, though some states can require refunds.

Use and file

Rates can be put into use first and must be filed within a specified period afterward. The department reviews after the fact and can disapprove.

The handbook groups file and use and use and file together as competitive rating laws. These laws usually depend on the market being competitive: if the department finds a market is not, the line can revert to prior approval. The NAIC's file and use model works this way. In a competitive market, rates are filed on or before the effective date; in a market found noncompetitive, filings are subject to a waiting period and a deemer.

No file (open competition)

Rates do not have to be filed with or approved by the department. The insurer must still keep the experience and other information used to develop its rates and make it available to the commissioner on request, and the rate standards still apply.

Flex rating

Prior approval applies only when a rate change exceeds a set percentage band, and in some states also when a decrease exceeds one; changes inside the band are handled under a lighter file and use or use and file process. The band, how it is measured (overall, by coverage or by territory) and whether changes accumulate over a period are set by each state's law.

Variations

Real systems mix these. The handbook mentions modified prior approval among the competitive alternatives that replaced prior approval in many states from the late 1960s onward. Some states regulate rates and forms under different systems, or apply a stricter system to residual market rates; the NAIC file and use model, for example, requires residual market rates to be approved before they take effect.

Deemer provisions

A deemer provision treats a filing as approved, or as meeting the law's requirements, if the department does not act within a set time. The NAIC prior approval model uses a waiting period: a filing must be on file for a specified number of days before it takes effect, the commissioner can extend the period once by written notice, and the filing "shall be deemed to meet the requirements of this Act unless disapproved" within the period or the extension. The model leaves the number of days blank; its drafting note says waiting periods in state statutes ranged from 15 to 90 days when the model was published.

Several details decide whether a deemer actually helps:

• When the clock starts. Under the model, if the filing lacks its supporting information, the department can request it and the waiting period starts when the information is furnished. Until then, the filing is not considered complete or available for use. Many state laws and practices work the same way, so an incomplete filing can lose its place in the queue.
• Extensions and objections. States differ on whether an objection letter stops or restarts the clock, and on how many extensions are allowed.
• What the deemer covers. Some deemer provisions apply only to certain lines or filing types, and some are written as deemed approval while others only make a filing usable.
• Waivers. Departments sometimes ask filers to agree to extend a review period. Whether and how to agree is a judgment call with consequences for the effective date.

Read the specific statute and the department's procedure rather than assuming a deemer applies. Deemer periods are a common source of state-specific confusion, and the details change.

How systems vary by line

The system that applies often depends on the line of business, not just the state:

• Personal lines such as private passenger auto and homeowners are more often under prior approval or tighter review than commercial lines. The NAIC handbook notes that states often place more emphasis on personal lines filings, on the view that personal lines consumers are less sophisticated buyers.
• Commercial lines are more often under file and use, use and file or no file systems. Some states exempt large commercial risks, often called exempt commercial policyholders, from rate or form filing under size and sophistication criteria set in their own law.
• Workers' compensation frequently has its own rating structure, with a designated rating or advisory organization filing loss costs or rates and insurers filing multipliers or deviations.
• Lines with rate-setting history or political attention, such as auto in some states, may have additional statutes, rollback provisions or intervenor processes. California's Proposition 103, passed in 1988, is the best-known example.

Finding what applies to a state and line

A defensible answer for one state and line comes from the primary sources, in this order:

1. The rating statute. Find the section that sets the filing requirement and timing for the line, and any exemptions. Note whether it is written as prior approval, file and use, use and file or something else, and whether it has a competitive-market finding or flex band.
2. Regulations and bulletins. These often set the waiting period mechanics, what makes a filing complete, and line-specific requirements.
3. The state's SERFF General Instructions and Filing Rules. These show how the department operationalizes the law for each type of insurance, including which filing types it accepts and what it expects attached.
4. The department's rate and form web pages. Many departments publish a summary of their filing requirements by line.
5. Recent public filings. Dispositions and correspondence in SERFF Filing Access show how the department actually treats filings of that type.

Record the citation and the date you checked each source. Rating laws change, competitive findings are revisited, and bulletins are withdrawn and reissued. A summary table copied from a secondary source is a starting point at most. State filing requirements and checklists covers how to turn these sources into a working checklist for a filing.