Filing your underwriting rules with the insurance department

[joeorez]

Hi,

I have not been involved with the non-rate portion of filing requirements with insurance departments, and I have a few questions. Let's stick with private passenger auto:

1. Is a company required to file its underwriting rules with the insurance department? I'm not talking about its rating rules, but rather its underwritng rules such as "We don't write new business where the driver has had more than 15 accidents last year."

2. On new business, other than the legally protected categories (such as I can't not write you due to your religion), can I use any non-legally protected category as an excuse not to write a class of business? For example, can I say in my underwriting rules "We don't write people whose occupation is professional beer taster." Is this likely to be unacceptable to a regulator?

3. Although generally we can not discriminate due to disability, can I use in my underwriting manual some specific disabilities as a reason not to write you? For example, "We don't write people whose vision with corrective lenses is worse than X?" Or, "We don't write people who have suffered more than two seizures while driving in the past year?" Is this likely to be unacceptable to a regulator?


Thanks,

[Wigmeister General]

Hi,

I have not been involved with the non-rate portion of filing requirements with insurance departments, and I have a few questions. Let's stick with private passenger auto:

1. Is a company required to file its underwriting rules with the insurance department? I'm not talking about its rating rules, but rather its underwritng rules such as "We don't write new business where the driver has had more than 15 accidents last year."

2. On new business, other than the legally protected categories (such as I can't not write you due to your religion), can I use any non-legally protected category as an excuse not to write a class of business? For example, can I say in my underwriting rules "We don't write people whose occupation is professional beer taster." Is this likely to be unacceptable to a regulator?

3. Although generally we can not discriminate due to disability, can I use in my underwriting manual some specific disabilities as a reason not to write you? For example, "We don't write people whose vision with corrective lenses is worse than X?" Or, "We don't write people who have suffered more than two seizures while driving in the past year?" Is this likely to be unacceptable to a regulator?


Thanks,

1. Generally speaking, "yes". Filing rates, rules and forms requires an explanation of each form, including the context for the form's use (i.e., U/W rule). However, in the example you gave (i.e., too many accidents), your rating rules will automatically exclude certain risks. For example, if the A/R rate is $3,000, all you have to do is file "voluntary" rates in excess of the A/R rate for certain rating variables.

2. Again, generally speaking, "yes". A more relevant example might be a program for "target" risks. For example, celebrities involved in auto accidents might be targets for severe losses. So, you'll want a special program geared for "celebrities". How you define celebrity is up to your company (e.g., only those in entertainment, only those in sports, only those who have "face" recognition, etc.) Consequently, if you have a "target" risk program, you can exclude anyone from your "normal" program who is a "celebrity".

3. Generally speaking, "no". Private passenger auto regulations tend to be very strict throughout the U.S. You'll have to research the regulations of the given state to determine where you can go. For example, in California, when an insurer cancels or non-renews an auto policy, the insurer must provide the insured a valid explanation for the cancellation or non-renewal. In contrast, for homeowners, the insurer may cancel or non-renew for "any reason or no stated reason". Therefore, one would expect that the U/W rules for private passenger auto are more regulated than the U/W rules for homeowners.

[Polly Nomial]

First off, insurance regulation varies from state to state.

1. Some states require filing of underwriting rules, others do not. However, not having to file your rules does not give you the go ahead to use a rule that is prohibited. It only means that you won't be caught until regulatory exam time.

2. PPA (and other personal lines) is generally more regulated than say commercial lines. (Again, varies by state) Occupation is protected (for personal lines) in many states. But the jist of your question is 'suppose it's a non-protected class'. Then it up to the regulators (subject to appeal) if they want to use the catch all reg which requires that your rules be "not unfairly discriminatory."

3. This one is pretty clear. You cannot cloak the discrimination in either of the ways you suggested.

(I worked for my state's dept of insurance for 11 years.)

[Brad Gile]

First off, insurance regulation varies from state to state.

1. Some states require filing of underwriting rules, others do not. However, not having to file your rules does not give you the go ahead to use a rule that is prohibited. It only means that you won't be caught until regulatory exam time.

2. PPA (and other personal lines) is generally more regulated than say commercial lines. (Again, varies by state) Occupation is protected (for personal lines) in many states. But the jist of your question is 'suppose it's a non-protected class'. Then it up to the regulators (subject to appeal) if they want to use the catch all reg which requires that your rules be "not unfairly discriminatory."

3. This one is pretty clear. You cannot cloak the discrimination in either of the ways you suggested.

(I worked for my state's dept of insurance for 11 years.)

Yes. It really doesn't matter whether a given state requires the filing of underwriting rules, because (AFAIK) all states do Market Conduct examinations, which typically check, inter alia, that the company applies its objective rules/procedures to its insureds in a fair and nondiscriminatory manner. :D


Brad Gile<---former Actuary, Wisconsin OCI, 1974-87

[joeorez]

Let's ignore target classes and unusually high rates for classes we don't like.

So, is the bottom line that we can individually choose not to insure someone from a category we don't like (professional beer-tasters, people with frequent seizures, etc.), but we should not put in the underwriting manual that we don't insure these categories at all?

[Polly Nomial]

Let's ignore target classes and unusually high rates for classes we don't like.

So, is the bottom line that we can individually choose not to insure someone from a category we don't like (professional beer-tasters, people with frequent seizures, etc.), but we should not put in the underwriting manual that we don't insure these categories at all?

Well examiners look at files of rejected applications. Could you get away with it? Probably with some creative documentation it could be done. But your question really boils down to - "Is it OK to bend (or break) the rules - if we don't get caught?"

I once wrote up a company for accepting a risk that was at first rejected because of some underwriting guideline, but was later accepted because the agent said he belonged to the same church as this person and "he's really a good person" (or something to that effect) Of course the company was foolish to keep the agent's note in the file, but again, not getting caught doesn't make it OK.