Switching gears: Electronic rate and form filing can hasten product approvals, but adaptation is hampered by technological incompatibility and administrative procedures. (Technology).

Time and space are at the heart of insurers' and regulators' switch to electronic rate and form filing. Insurers relying on getting rate adjustments or new-product approvals using paper-based procedures sent through the mail face time and storage constraints. Every year, the Pennsylvania Department of Insurance fills up an average of 26 linear feet of storage space with new paper property/casualty rate and form filings. It can take several weeks for insurers to receive acknowledgment that rates and forms mailed to state regulators through the U.S. Postal Service reached the appropriate person.

As insurers and regulators switch to electronic filing accomplished through the System for Electronic Rate and Form Filing or e-mail, the 26 linear feet of filing space shrink to byte-sized pieces of information housed in computers. The weeks it took to acknowledge a filing compress to 24 hours. Using SERFF, insurers can obtain a new product or rate approval in an average 16 days, compared with up to a year for paper filings. This speed issue is important as insurers compete more and more with banks, which have a less cumbersome regulatory system.

The SERFF system allows companies to send and states to receive, comment on and approve or reject insurance company rate and form filings via the Internet. SERFF's submissions requirements database allows insurers to avoid incomplete filings by detailing what must be filed.

Sue Eckler-Kerns, a compliance manager with Prudential Financial and an active SERFF user, says the program finally has reached critical mass with the number of participating states. "When fewer states were available, it was harder to sell and to see the benefits...but now, people are excited; there's a greater sense of enthusiasm about SERFF's use than in the past," Eckler-Kerns said.

Implementation Hurdles

But even though the switchover to electronic filing began 10 years ago, a handful of states still are not participating. Although all 51 jurisdictions are licensed to participate in SERFF, only 47 accept SEREF filings, and Nebraska and Pennsylvania also accept e-mail rate and form transactions. Four states--Rhode Island, South Carolina, Washington and West Virginia--are licensed to accept SERFF filings, but for a variety of reasons are in different stages of getting on board. Currently, the National Association of Insurance Commissioners reports 62 insurance entities, representing 401 companies, are using SERFF.

SERFF use is limited in the states that accept the program. Of the 47 states, life insurance filings are accepted by 42; health insurance filings, 32; and property/casualty filings, 43. The main reasons the remaining states give for not accepting filings are technical issues. In fact, a spokesperson for the South Carolina Department of Insurance attributed its inability to accept SERFF filings to a system-integration issue that was being worked out with the National Association of Insurance Commissioners. The department is currently reprogramming its system so it can communicate with SERFF.

Although Florida is a registered SERFF state, it accepts only private-passenger auto and Medigap coverage filings, with plans to expand filings acceptance this summer. In Delaware, where insurance department employees received training on SERFF late last year, SERFF filings for all life and limited health lines started being accepted in March. But Darryl Reese, the director of the Delaware Insurance Department's bureau of company examination, rehabilitation and guaranty; which approves or contests rate filings, said the bureau is taking a step-by-step approach to SERFF's implementation. Nebraska has received only 75 filings since it began accepting SERFF nine months ago, and the state reports that insurers still prefer paper filings to the electronic method.

Even big states like New York took a measured approach to accepting SERFF filings. The New York Department of Insurance began using SERFF for property/casualty filings in 2000 and added life insurance rate and form filing last May.

The NAIC is making a big push to get SERFF use integrated and ingrained in the industry this year to offset the millions of dollars that were invested and loaned to the program. According to figures released by the NAIC, SERFF use is growing. In December 2001, 4,169 filings were reported, up from 2,396 in December 2000. Seminars that offer hands-on SERFF training and demonstrations are being hosted at companies nationwide. "We're reaching out to insurers and holding conferences with the goal of doubling or tripling the use of SERFF by year end," said Sonja Larkin-Thorne, vice president of government affairs for Hartford Financial Services Group.

Growing Pains

Some in the insurance industry still have concerns about SERFF, said Pat Watts, assistant vice president of regulation and law for the Alliance of American Insurers. "The problems are along the lines that it does a lot of things for regulators, but not for the industry," Watts said.

For instance, the NAIC's SERFF group worked first on creating an interface between SERFF and state insurance departments, and the industry's interface followed. Although they have since been rescinded, insurers also were against paying licensing fees, which could range from $7,500 for a single company to as high as $12,000 for an insurer with multiple companies, as well as filing fees to use SERFF Watts said insurers don't like the way the filing fees are structured, either. The fees are packaged like mobile phone minutes--they are purchased in blocks, and if you don't use a filing, there is no refund. "From the perspective of insurers, it's hard to make a business case to pay for something you don't use," Watts said.

Cost Savings

With the elimination of the licensing fee, insurers like Hartford are discovering cost savings in using SERFF for rate and form filing. In personal lines filing, it costs Hartford $6.50 for each electronic filing vs. $38.29 for a paper-based submission. The cost savings also are reflected in commercial lines, with a paper-based filing totaling $46 and a SERFF submission costing $7.62.

Even with its ability to shorten the amount of time to file a form or rate change, SERFF still can't change the way regulators respond to filings. "Some states are still notoriously slow at looking at filings. Once they make a decision, they can quickly respond, but have to get to it first. The NAIC is touting a 16-day turnaround on SERFF filings. I'm not sure if they can show that the complex filings can be handled in that way, and since SERFF filings are moved to the head of the line, that skewed the result," Watts said. The NAIC reports the 16-day quote is based on both complex and simple filings.

The cost savings being touted by a paperless electronic system don't come into play in some states, like Nebraska, which still requires conversion of the e-mail filings and SERFF filings to a paper form for public viewing. In fact, the Nebraska Department of Insurance's life/health division accepts both e-mail and SERFF filings, but its property/casualty counterpart doesn't because of the cost involved in printing hard copies of the electronic filing. Depending on whether a company is submitting a simple driver exclusion or a new product filing, property/casualty hard copies can be anywhere from two pages to 250 pages. However, The Nebraska Insurance Department is in the process of setting up a monitor to permit public viewing of SERFF filings.

One former member of the New York State Insurance Department says the market will ultimately determine what process will be used, and it will be motivated by the need to reduce filing costs. "If the industry and regulator community agree that it's easier to use another technology other than SERFF, they will prevail using e-mail. It's a question of which technology works the best. The industry isn't necessarily wedded to SERFF as a way to file forms more efficiently," said Scott Harrison, a partner in the insurance regulatory practice for the professional services firm KPMG LLP.

Why Switch?

The paper rate-and-form procedure is rife with minefields, such as missing documents and forms sent to the wrong address. And insurers that do business within all 51 jurisdictions encounter 51 different sets of instructions.

"Some states require five copies of an attachment, and some four copies. Using that process, it's easy to make a mistake when doing a filing," said Larkin-Thorne. But with SERFF's checklists and the ability to use e-mail to communicate directly with the regulator, these previous problems are eliminated. In fact, the NAIC's Electronic Commerce and Regulation Working Group reports 94% of SERFF filings go through insurance departments without the need for additional correspondence between regulators and companies.

"SERFF puts us on a level playing field with the insurance departments. You pull up the application on the computer, and the system walks you through each state's requirements. There is no need to look at a manual, no Xeroxing, no mailing. There is no room for misinterpretation," said Larkin-Thorne.

Larkin-Thorne points out that SERFF is the main vehicle for the industry's speed-to-market initiative, because it reduces the time it takes to get rates and products approved. She reports that the usual approval time for commercial rate filings of 30 days to 45 days is cut in half using SERFF, and personal lines rate changes are approved in three to 10 days now.

Prudential Financial's group annuity and group pension compliance unit in Florham Park, N.J., files everything in the office that it's allowed to by SERFE Eckler-Kerns, says using SERFF brings the company's products to market faster. "The obvious saving is in the time mailing it. Using the mail, it has to go from a user's desk down to the mailroom and then out to be mailed. SERFF cuts four or five days off transmission time. You hit send, and it's received in less than an hour," Eckler-Kerns said.

SERFF's tracking feature is also popular with insurers. Once entered and accepted into the system, insurers can go into the file and see who worked on it at the state insurance department. They also can use electronic messaging available through SERFF to solve problems when they crop up. Eckler-Kerns said in the paper process, there can be a four- or five-day delay with questions.

E-Mail: Another Way to File

With 15,000 rate and form filings streaming into the Pennsylvania Insurance Department annually, the department recognized a need to accept them coming in any form. In fact, Pennsylvania accepts rate and form filings in many ways, including fax, e-mail, SERFF, overnight mail and regular U.S. mail. Pennsylvania also was one of the charter members of the SERFF committee, joining in 1995 in an attempt to modernize rates and products.

"We looked at the way we were doing business and decided to change. In harmony with the spirit of SERFF, it's a no-brainer to identify and receive e-mail filings," said Randy Rohrbauch, deputy commissioner for the Pennsylvania Insurance Department. Currently, the department is seeing a large number of e-mail filings, and that number is growing. Rohrbauch attributes it to being easier to submit than SERFF and less expensive.

The department's electronic platform consists of Microsoft Office Suite 2000, which includes Word, Excel and Access. The department's office of rate and policy regulation also can read files submitted on diskette, Zip disk and CD-ROM. Typically, Rohrbauch says, companies submit a filing by emailing a duplicate cover letter and attaching a PDF (portable document format) file or spreadsheet for rating information.

Two problems with e-mail filings that aren't an issue for SERFF users are security and the inability to track a submission, said Larkin-Thorne. "The big issue for companies is security. Anything that goes out of this building is secure, and SERFF guarantees us that security," said Larkin-Thorne. There is also the danger that e-mail can be deleted, and because some filings can be very large, many e-mail servers may not be able to accommodate a big file.

Nebraska's insurance department reports that e-mail submissions save a little time, but basically they are no different from paper filings. But Ron Elmshouser, head of the life/health division for the department, believes e-mail submissions are simpler to receive than SERFF filings.

Rohrbauch says Pennsylvania has a secure e-mail system and fire walls as well as a unique mailbox to receive the filings that is checked several times a day. In the future, Rohrbauch said, insurers will select a process based on their individual needs and the sophistication of their technology. "E-mail will probably be replaced by SERFF. It's very much like the case of using typewriters, then word processors and computers. People have to grow into technology, and it takes time to develop competency," said Rohrbauch.

2001 SERFF Filings By Line of Business


Life    33%
Health   2%
P&C     65%

Year-to-date SERFF Filings--4,169

Source: The National Association of Insurance Commissioners

Note: Table made from pie chart