You are an actuary, or another insurance professional and need to file rate changes with the State Departments of Insurance. You are limited on time so it is important that the state approves your rate changes immediately.
This scenario is something I’ve been involved in for over 15 years. When filing rate files, my goal is to give enough information to the State Departments of Insurance to allow them to approve it. No objections, no questions asked. If this is not possible, my backup goal is to receive the least amount of objections and approval as soon as I submit the answers. These are the steps I took to achieve both of these goals.
STEP 1 – Quantify C Hange
It is important to clearly calculate and place the rate change in context. It is important to clearly show each relativity, factor or element that is changing and the calculation showing how the overall rate changes are calculated. You must include any information that you think is necessary (e.g., “The distribution of state deductible changes is not known, so a countrywide distribution is being used”) in your exhibit.
STEP 2 – Provide a rationale for all changes
Step 2 is the creation of an actuarial memoandum. The memorandum must cover all aspects of the business line and provide details on why you are proposing changes. To give the reader an overview of all the exhibits in your filing, it is important to provide some context. The actuarial memorandum should be read aloud by the reader so that they can nod in agreement as they close it.
Your actuarial memorandum must cover:
- The proposed effective date, percent change overall, and the state, line of work
- A list of exhibits with brief explanations (If longer explanations are required, the description should be added as a cover memo to each exhibit).
- A brief overview of the business line
- A description of the elements that are being reviewed, and the changes required
- Justification for all proposed changes
- Below is information from step 5
STEP 3: Use Standard Techniques/Exhibits
Everyday, the state insurance departments receive a lot of paperwork. Many cannot afford to spend too much time and resources trying to find out what you did. This is why I suggest that you provide standard-looking exhibits and follow standard procedures to show the department. You can do something unique or unusual, but you will need to follow Step 4’s recommendations. Explain the method, its reasoning, and the results. There are several ways to find examples of typical exhibits if you don’t know what they look like.
There are many options for you to get these types of exhibits:
- Actuaries with experience may have examples they are willing to share
- Your company’s past filings that were approved
- The Insurance Department. Ask them to recommend a filing with exhibits they liked. You can either get a copy from them, or from a file copying service.
- From actuarial papers/books
STEP 4: Provide a sample calculation
In your actuarial memo, or footnotes to exhibits, you should include the formulas for the calculations that use numbered lines or columns. If possible, provide a simplified explanation of the complicated calculations with explanations in normal English. This will make it easier for your reviewer to follow. You want the reviewer nodding their heads as they look at the exhibits.
Complex calculations include:
- Credibility and additional credibility
- Trend procedures
- Catastrophe loads
- Expected loss ratio
- Loss development methodology
- Restatement of premiums at current level
- Calculation of pricing of new/unique coverages/perils/policy provisions
STEP 5: Place the proposed changes in perspective
You can find filings from other companies or the insurance industry press to help your company learn about what its competitors do (see Step 3). Your actuarial memo should place your company’s activities in context of other companies’ actions in the state. You are proving to the insurance department that your company is doing what it should be doing.
STEP 6 – Determine the state’s requirements and provide all forms and exhibits
It is important that you read all the information on state websites regarding what was required to complete a rate filing. The state will usually require a few forms to be filled out with the information they are most interested in. You want to get your filings approved quickly so make sure you have all forms filled out with correct information.
You may be asked for some information on the forms, such as:
- Name of company, NAIC code and address. Phone number. Contact person.
- Changes and effective dates for this filing are requested along with the previous filing your company made in this area of business.
- 5 years of written premium, earned, lost, paid losses and policy counts.
- Below is a breakdown of the rate indications and change requested
- Here’s a breakdown of your investment income and expenses
The websites of state insurance departments provide information about the requirements for each state. The website of the National Association of Insurance Commissioners contains a list of all of them. A great resource would be an experienced actuary or insurance compliance professional.
STEP 7 – Number your exhibits and label all terms consistently
Take a look through all exhibits and memos, and make sure that they are consistently numbered. The business protocol for actuarial rate levels indications is that the supporting information for each exhibit should be placed next to the exhibit. Exhibit A might show trends in loss, development, and loss adjustment expenses. Exhibit D might then be used to develop the trend, while Exhibit E might be used for the development. Exhibit F may contain the loss adjustment expense figures.
Look for consistency in other aspects as well when you look through the exhibits.
- You should use the same terms. You can cause confusion if you call numbers “Reserves”, on one page, and “Outstanding”, on the other.
- They are consistently named and refer to the correct exhibit. Titles should be identical to the Actuarial Memorandum titles
- Font, formatting, number size, and font are all the same across.
- Cite clearly the sources of financial and industry data for your company
STEP 8: Making Filings via SERFF
Many states accept or require SERFF filings. SERFF filings can be used to file electronic insurance claims… nearly 400,000 such filings were made through SERFF in 2007. SERFF filings can be approved quickly because they are standardised. Sometimes they are even approved the same day that they are filed.
Site “About SERFF”:
The NAIC encourages insurers and states to participate in a voluntary SERFF Program that provides a technological solution for rate and form filing, and approval processes. SERFF is a web-based, decentralized electronic filing system that allows for point-to-point file sharing. SERFF allows for communication, management, analysis, and electronic storage of documents as well as supporting information. It is intended to increase efficiency in the rate and form filing, approval process, and reduce time and costs involved in regulatory filings. It provides the most current filing requirements as they become available.
