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On February 9, 2024, the California Department of Insurance (“CDI”) announced proposed regulatory rule changes that will impact the rate application approval process. These changes are part of the CDI’s Sustainable Insurance Strategy. The goal of the proposed changes is to increase “expediency and transparency in the prior rate approval process.” 1
Three key changes and their impact are outlined below.
Insurers submit rate applications for the following filing types: (1) new program filings; (2) transferred program filings; (3) rate filings; (4) rule filings; and (5) form filings. The filing submissions are reviewed by the CDI’s Intake Unit for completeness.
For filing submissions that are missing required information, the CDI currently sends objection letters to insurers within 14 days. 2 With the proposed regulations, this period is being extended to 30 days. If an insurer is unable to respond within the required timeframe, the filing is rejected by the CDI’s Intake Unit.
Complete filing submissions are processed by the CDI’s Intake Unit and are required to be included on the CDI’s public notice list within 10 days of the determination that the rate application is complete.
According to our actuarial consulting experts, the extension of the review time will result in the following:
Although form and rule filings require less time to review for completeness, they will be subject to the same extended review times as rate filings.
There are several changes which clarify and update the regulations that outline the information required for a complete rate application. The CDI already includes a number of these items as part of the current rate application process. However, the data reconciliation for rate filings is performed after the rate application has been processed by the CDI’s Intake Unit.
With the new regulations, the data reconciliation will be performed at the beginning of the filing process and prior to public notice. In order for the rate application to be complete, all of the data must be reconciled and differences explained.
The CDI publishes a Prior Approval Rate Application – Data Quality and Reconciliation Checklist (“checklist”) on their website. Prior to submitting a rate filing, companies should perform all the items on the checklist. The CDI has an internal tool that is used to perform all these checks on the data.
Based on information provided by the CDI and a review of a number of rate filings by our actuarial consulting experts, a number of companies are not checking the data and have unexplained reconciliation differences. These companies receive objection letters requesting an explanation of these differences, which result in delays in the filing approval process. The CDI will not start reviewing a rate filing until all reconciliation differences are explained. When there are unexplained data reconciliations, more often than not, companies have data errors that require correction. The CDI does not currently have any threshold for immaterial differences, which is normally common when working with data that could be coming from different systems.
The CDI will eventually provide their internal data reconciliation tool to the industry. Perr&Knight’s actuarial consulting experts have built a tool that performs the items on the CDI’s checklist and recommends all insurers perform these data checks or use an actuarial firm to assist with this.
Furthermore, our actuarial consulting experts recommend that explainable reconciliation differences be mentioned in the Filing Memorandum. Otherwise, the insurer may receive an objection letter requesting an explanation, which will delay the filing review process.
The language in the current regulation does not define underwriting guidelines and states, “the Commissioner may later require the submission of relevant underwriting rules.” For a rate application to be complete, underwriting guidelines must be included regardless of whether or not any changes are being proposed to the underwriting guidelines.
In order to ensure that complete underwriting guidelines are included with the rate application, the proposed regulations state the following: “A complete rate application shall include any and all criteria, guidelines, systems, manuals, models and algorithms the insurer uses to determine whether to accept, examine, inspect, cancel, non-renew, or re-underwrite a risk, or to modify an applicant’s or insured’s coverage or coverage options.”
Although these items may include trade secret information, the CDI does not currently allow this to be submitted on a confidential basis, according to our state filings consultants. Furthermore, changes to these items require a filing to be submitted for prior approval.
As a leading provider of actuarial consulting and state filings services to insurers in California, our consultants actively follow the California market and are very familiar with all the filing requirements in the state. We prepare and submit more California filings than any other company. If the proposed changes go into effect into California, we can provide guidance and support to ensure minimal impact to your state filings process.
Let us help you navigate the challenges of California insurance product regulation. Contact the state filings experts at Perr&Knight.
