File-and-Use Rating Laws
What Does File-and-Use Rating Laws Mean?
File-and-use rating laws refer to insurance regulations that allow an insurance company to implement new rates before receiving approval from state governments in the US. These regulations grant insurance companies the freedom to apply the new rates across all their products. However, the insurance regulatory body retains the authority to reject or cancel any rate change. Typically, regulatory bodies will reject rate changes if they believe the insurance company cannot justify the adjustment.
Insuranceopedia Explains File-and-Use Rating Laws
In the United States, state governments are responsible for regulating insurance companies operating within their jurisdictions. These states often use various mechanisms to regulate the rates that insurance companies can charge, aiming to balance the needs of both insurers and consumers.
For example, state regulatory bodies ensure that insurance companies offer fair pricing to consumers, while also ensuring the companies remain solvent by allowing them to set premiums that are adequate relative to the promised benefits.
When insurance companies introduce rate changes, they must first obtain approval for these changes. Under flex-rating laws, insurers can adjust their rates unless the percentage change exceeds a specific threshold. Rate increases above this threshold will be subject to regulatory scrutiny to determine whether the changes are unreasonable. As long as the insurance company provides regulators with a copy of its rating schedule upon request, the company is allowed to adjust rates at its discretion.
Because rates approved under file-and-use laws can vary widely between companies, shopping around remains the most reliable way to find a lower price. Comparing car insurance quotes from several insurers in the same state is the easiest way to see those differences. These rules also explain why premiums for the same driver profile can look very different from one state to another, and the states with the cheapest car insurance tend to be those where competition keeps approved rates low.