The California Department of Insurance’s (CDI’s) recently issued legal opinion, which requires underwriting rules included in property and casualty (P&C) rate applications to be made public, could have negative implications for California’s P&C and InsurTech markets, according to analysts at U.S law firm Drinker Biddle.
The legal opinion, which Drinker Biddle alleges was issued to avert consumer litigation against the CDI, marks a significant shift in policy, as the CDI had previously treated P&C underwriting rules as confidential provided they were marked as such, unless a request for information was made.
The CDI stated that “the public has a right to know how insurers choose who is eligible for coverage,” and said that the change will “let consumers know if they’re being treated fairly by their insurers.”
“Consumers and insurers alike benefit from transparency,” said Insurance Commissioner Dave Jones. “Consumers are able to better understand how insurance companies decide who to insure and who to renew.”
However, Drinker Biddle noted that the decision could discourage the launch of some new types of rating models and products in California if the CDI will not protect the intellectual property of insurers and their innovation partners.
Additionally, it suggested that the CDI’s rationale of transparency and fair treatment could have wider implications and contended that insurance regulators in other states may now find public disclosure arguments more persuasive.
The CDI’s legal opinion defines an “underwriting rule” as “any rule or factor used by an insurer in the process of examining, accepting, or rejecting insurance risks, and classifying those risks selected in order to charge the proper premium for each.”
It reasons that underwriting rules are subject to public inspection because California law requires all information provided to the Commissioner to be made available for public inspection, and because underwriting rules are provided to the CDI to evaluate the reasonableness of a proposed rate.