A regime in which an insurer cannot apply a rate without the regulator's consent, protecting consumers in the short run and capable of closing the market in the long run.
Under prior approval, an insurer wishing to change its rates files a justification and waits for a decision, unlike regimes where the rate applies immediately subject to later review. The arrangement protects effectively against abusive increases and against discrimination, and it is neutral so long as the underlying risk is stable. It becomes a problem when risk moves faster than procedure: if the regulator refuses an increase that loss experience justifies, the insurer cannot price the risk and stops writing it, so a device meant to keep insurance affordable makes it unavailable. A second and quieter effect concerns admissible methods: some regimes forbid supporting a rate with a forward-looking catastrophe model and require an average of past losses, which structurally prevents pricing a deterioration before it has occurred. Recent reforms bear precisely on that point, trading permission to use forward-looking models against a commitment to write business in underserved areas.
Proposition 103, adopted by referendum in California in November 1988, subjects any property and casualty rate change to prior approval by the insurance commissioner. The sustainable insurance strategy announced by the California regulator in 2024 opened the use of forward-looking catastrophe models in exchange for commitments to write in wildfire-exposed areas.
prior approval, contrôle des tarifs, rate regulation, homologation tarifaire