P&CCaliforniaeasy
Under Proposition 103, what type of rate regulation system does California use for personal lines property and casualty insurance?
AFile-and-use — new rates take effect immediately upon filing with the Department, subject only to later disapproval
BUse-and-file — rates may be implemented before filing, provided the filing is submitted within 30 days of first use
Prior approval — the Commissioner must affirmatively approve rates before an insurer may use them on personal lines
DOpen competition — market forces set rates and no advance rate filing with the Department is required at all
Why this is the answer
Proposition 103, enacted in 1988 and codified at Ins. Code §§ 1861.01-1861.16, transformed California from an open-competition state into a prior-approval state. Under Ins. Code § 1861.05, no insurer may use a new rate for personal lines auto, homeowners, or most P&C lines until the Commissioner has affirmatively approved it. The Commissioner must determine the rate is not excessive, inadequate, or unfairly discriminatory. This contrasts with file-and-use and use-and-file regimes found in other jurisdictions. See Ins. Code § 1861.05.
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