KPMG.RevOv Flashcards
Describe the continuum of rate regulation approaches
Active regulation:
- Government Mandated
- Prior Approval
Moderate Rate Regulation:
- File & Use
- Use & File
- Flex Rating
Competitive:
- File Only
- Open Competition
Describe the rate regulation approach: GOVERNMENT MANDATED and give an example(s)
Government sets:
- Rates
- Rate changes
- Risk Classification
Examples are:
- Alberta GRID
- BC
Describe the rate regulation approach: PRIOR APPROVAL and give an example(s)
Regulator approves the following before they can be used:
- Rates
- Rate changes
- Risk classification
Examples are:
- Ontario Major filings
- Nova Scotia
Describe the rate regulation approach: FILE AND USE and give an example(s)
Insurer files the following before use:
- Rates
- Rate changes
- Risk classification
Regulators have a set period to approve/disapprove otherwise rates can be used (within 30-90 days)
Filings docs are simpler than prior approval
Examples are:
- PEI
Describe the rate regulation approach: USE AND FILE and give an example(s)
Insurer uses:
- Rates
- Rate changes
- Risk Classification
and files with regulators. Regulators can then retroactively change rates within a certain period
Examples are:
- Quebec
Describe the rate regulation approach: FLEX RATING and give an example(s)
Insurer uses
- Rates
- Rate changes
- Risk classification
provided rate changes are WITHIN a certain range
Examples are:
- NOT USED IN CANADA
Describe the rate regulation approach: FILE ONLY and give an example(s)
Insurer files:
- Rates
- Rate changes
- Risk classification
but NO review or approval is required
Examples are:
- No example in text
Describe the rate regulation approach: OPEN COMPETITION and give an example(s)
No filing required
Examples are:
- Nunavut, Yukon, Northwest Territories
Identify the main regulatory concerns for auto insurance (2)
Availability & affordability
Do rate regulation mechanisms vary by province?
Yes
Which provinces/territories use 1 approach for all required vehicles (5)
- NS (Prior approval)
- PEI (file & use)
- YK, NV, NT (Open competition)
Identify external considerations affecting Rate Regulation
- Market cycle
- Economic conditons
- Politics
Consistent with provincial regs? BC private insurer files Coll and Comp changes and waits for approval before using rates
No - Coll & Comp are optional coverages and optional coverages are governed by OPEN COMPETITION
Consistent with provincial regs? NS must file rates with NC Utility & Review Board within specified period after using rates
No - NS uses the prior approval and therefore cannot start using rates until they are approved by regulators
Consistent with provincial regs? QC private insurer uses property damage rates before submitting filing
Yes - QC uses USE & FILE
Consistent with provincial regs? AB Government acts as a monopoly in providing insurance for TNCs
No - Private insurers provide insurance for TNCs through the SPF9
Name 6 benefits to policyholders of switching from Prior Approval to Use & File
- Less rate volatility (faster rate updates, lower price swings)
- Lower rates (due to lower filing costs because filings are less complicated)
- Use & file systems have smaller residual markets than prior approval states
- Will likely lead to a large number of insurers therefore providing more choices to consumers
- More refined classification or rating algorithm or innovation
- Regulators have more time to focus on solvency or market conduct
Identify advantages to flex rating
- Less volatility in rates (rate changes must be within a specific range)
- Lower expenses (vs prior approval since prior approval is more expensive than other rate regulatory approaches)
Which is faster, file & use vs prior approval
File & use, since regulators have a specific timeframe that they need to give their approval/disapproval until insurers can start using the filed rates. This is not the case for prior approval
Which is faster, Open Competition vs Prior Approval
Open competiton - no need to file rates therefore can implement new rates directly whenever. Vs prior approval where rates need to be approved by regulators which takes much longer
Which is faster, Use & File or File & Use
Under file & use, insurers will submit their rates for approval to regulators and regulators will have a set period of time (usually between 30 and 90 days) to approve/disprove until insurers can start using the rates automatically.
Under use & file, insurers can start using the rates directly and will submit the changes to regulators. Regulators can then retroactively change the rates that were implemented by the insurer.
Because the use & file system allows insurers to use the rates from day 1 whereas this is not the case for the file & use system, we must conclude that the use & file system is faster.
