Insurance rates are regulated by the state.Each state has a regulatory body that

Question

Insurance rates are regulated by the state.Each state has a regulatory body that oversees insurance matters.This body is often called the Department of Insurance, but some states use other names.The insurance department is headed by a commissioner. Depending on the state, the insurance commissioner may be appointed or elected.

There are several reasons why states regulate insurance rates. One is to ensure that rates aren't excessive. In the absence of regulation, insurers might charge rates that are too high and that generate too much profit.To monitor and regulate the rates following are the three ways Regulatory Authority uses:-

1) Prior Approval : Insurers must submit rates to the state rating authority and wait for approval before using them.

2) Flex Rating   : Insurers must seek approval for rate changes that exceed a specified percentage. For example, insurers may be required to obtain prior approval if they increase their rates by more than 5%.

3) Use and File :Insurers may use new rates immediately but must file them with the regulator within a specified time period.

Explanation / Answer

Indicate three ways that regulatory authorities may ensure that insurance rates are not excessive

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