Which statement accurately describes prior approval as a type of rating law?

Prior approval as a type of rating law involves a specific process where an insurance company must submit proposed rates to the state regulatory authority, in this case, the Department of Insurance, for review before they can implement those rates. This process is designed to ensure that the rates charged to consumers are reasonable and justifiable.

The requirement for insurers to provide evidence that their proposed rates are fair and appropriate adds an additional layer of consumer protection, as it prevents the implementation of excessively high rates that could harm policyholders. After the proposal is submitted, there is a designated waiting period during which the state analyzes the filing. The typical timeframe for this review process is often within 30 to 60 days. The insurer cannot charge the new rates until they receive approval, making it crucial for them to provide all necessary documentation and justification upfront.

This method contrasts with other rating laws, such as open competition, where insurers can utilize any rates they determine without prior approval, or a system that allows them to implement rates immediately while awaiting regulatory feedback. Prior approval provides a structured and regulated environment for both producers and consumers, ensuring that rates are not only competitive but also fair and sustainable.