File-and-Use Rating Laws

Updated: 09 June 2023

What Does File-and-Use Rating Laws Mean?

File-and-use rating laws refer to certain insurance regulations that enable an insurance company to use the new rates it has formulated prior to receiving approval from the state governments in the US. Because of these regulations, insurance companies have the liberty to implement the new rates on all their products. However, the insurance regulatory body continues to have the authority for striking down or canceling any rate change. Typically, insurance regulatory bodies would strike down rate changes if, in their view, the insurance company has no basis for justifying the rate change.

Insuranceopedia Explains File-and-Use Rating Laws

In the United States, state governments have the responsibility for regulating the insurance companies operating in their respective states. Oftentimes, these states use various mechanisms for regulating the rates that insurance companies can charge. In many cases, state regulatory bodies focus on balancing the needs of insurance companies and their customers.

For instance, they will ensure that insurance companies offer fair price policies to consumers. At the same time, they ensure that the insurance companies can remain solvent by allowing the insurers to provide policies that bring in adequate amounts of premium relative to the promised benefits.

When insurance companies introduce rate changes, they will first need to obtain an approval for the rate changes. Flex-rating laws enable insurers to adjust their rates unless the percentage change is over a specific threshold. Rate increases beyond the threshold will attract regulatory scrutiny to evaluate whether the rate changes are unreasonable. Therefore, as long as the insurance company provides regulators with a copy of its ratings schedule upon request, the regulators will permit the insurance company to change rates at its discretion.

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