Prior Approval
A state regulatory framework requiring insurers to obtain explicit department approval before implementing new rates or forms—the most restrictive approach.
FAQs
- What happens if a carrier charges rates before receiving prior approval?
- Charging non-approved rates in a prior approval state is a regulatory violation subject to significant penalties, including per-policy fines, required refunds of the difference between charged and approved rates with interest, and potential license suspension. Most carriers have robust compliance controls to prevent premature rate implementation, but system or process failures do occur, sometimes leading to costly remediation programs.
- Can carriers withdraw from a state if prior approval prevents adequate rates?
- Yes, though withdrawal requires regulatory notice and compliance with run-off obligations for existing policies. Some states impose withdrawal restrictions—requiring significant advance notice and department approval for large-scale market withdrawals. California Proposition 103 has faced criticism because carriers have at times withdrawn from segments of the California market when they could not obtain adequate approved rates, reducing consumer options.
- Is prior approval more or less common across US states?
- Prior approval is common for personal lines auto and homeowners in many states, particularly for new rate increases. Pure open competition (no filing) is rare—most states fall somewhere between strict prior approval and file-and-use for most lines. Commercial lines tend to use more flexible regulatory models even in states that use prior approval for personal lines.
Related Terms
File-and-Use
A regulatory framework allowing insurers to use new rates or forms immediately upon filing, without waiting for approval—subject to later department review.
Use-and-File
A regulatory framework allowing insurers to implement new rates or forms before filing them, with retroactive filing required within a specified period.
Rate Filing
The formal submission of insurance premium rates, rating factors, and actuarial documentation to the state insurance department before charging those rates.
State Insurance Department
The state regulatory body with primary authority over insurance regulation—licensing insurers, reviewing rates and forms, and enforcing insurance laws.