Which type of law requires prior approval for new rates above a specified percentage?

The correct answer is based on the concept of flex rating laws, which are designed to allow insurance companies some flexibility in adjusting their rates while still providing regulatory oversight. Under flex rating laws, insurers are typically allowed to raise their rates without prior approval, provided the increase does not exceed a predetermined percentage set by the regulatory authority. If the rate increase exceeds this threshold, prior approval must be obtained before the new rates can be implemented.

This framework aims to balance the need for insurance companies to remain competitive and adjust to market conditions while ensuring that policyholders are protected from excessive rate increases. The majority of the regulatory models involve some form of filing or approval process, but flex rating laws specifically strike a compromise between full prior approval and complete freedom, hence emphasizing the importance of the specified percentage threshold for rate changes.

In contrast, prior-approval laws generally require all rate increases to be approved by the regulatory body before they can be implemented, while no filing laws and file-and-use laws apply different rules regarding the regulatory process for setting rates.