Date: Aug 01, 2014
August 2014-Western Grower Ag Legal Network

It happens every year just before renewal time — business owners wait in fear of increases in their insurance premiums.  Rarely do premiums go down.  Most often premiums will increase regardless of the number of losses your business had during the year because inflation is factored in.  Some years the increases are small and understandable.  In other years, premiums seem to jump up for no apparent reason at all.

This fluctuation from year to year makes it appear that insurance companies change their rates without any rhyme nor reason and can be very frustrating to business owners.  But the reality is that there is a formal process that companies must follow when setting insurance rates.  There are also steps businesses can take to minimize the rate increases or even eliminate them altogether.

In California and a number of other states, insurance companies must “file” their rates with the Department of Insurance and get approval for them before they can be used.  “A filing” contains a very detailed explanation of the rates the insurance company wants to charge for a particular type of policy or even for a particular type of coverage.  The “filing” usually includes a substantial amount of documentation to support the rates that are being charged.  The company must demonstrate that the rates are justified by the data provided in the documents.  Some of the data included in the documents are the expected losses for this type of policy as well as the expenses associated with handling and settling the claims that occur.

Also included are the sales and marketing costs related to the policy, the cost to issue and service the policy and the fees and taxes that will be paid to the department for the policy.  Agency commissions are also part of the “filing.”  The company even includes the profit amount it expects to get from the issuance of every policy.

If the Department of Insurance finds the information to be accurate and reasonable, it will approve the “filing.”  If the department feels that the documentation is incomplete, inaccurate, or excessive, the department will reject the “filing” as unacceptable.  Companies can then choose to correct the “filing” and re-submit it, or the company may decide to withdraw the “filing” and consider whether it wants to offer that type of insurance.  It is a very laborious and detailed process and it can take months or even years for some “filings” to get approval.  As a result, companies do not submit “filings” without substantial documentation.

The department is also very aware of what policies are available in the marketplace and what rates are considered reasonable, so it will reject some “filings” that are well supported if they believe the rates are simply “too high.”  This sometimes occurs with workers’ compensation or health insurance rates submitted by a large carrier.

Once approved, the insurance carrier can start using the rates for that policy or type of coverage.  However, in many lines of business, insurance carriers file a number of different rates or rate levels.  This is where a business has the ability to impact its rates.

Business operations with better risk characteristics can get discounted rates.  A business may qualify for a better rate than an average business risk if buildings are made of fire protective materials and are properly maintained and have good safety programs.  Buildings with updated electrical wiring and heating, may also qualify for a discount over standard risks.  Driving records, vehicle maintenance and vehicle age, loss history and experience of the management team can also warrant a discount for a business.

The key is to make sure your broker communicates this information to the insurance company so they can apply the maximum number of credits they can to your insurance rates.

Western Growers Insurance Services gathers all of this information when evaluating new prospects for insurance.  If you would like more information, please contact Greg Nelson, at

WG Staff Contact

Greg Nelson
Vice President, WGIS Sales

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