What is required under the prior approval method for rates in insurance?

Under the prior approval method for rates in insurance, it is necessary for rates to receive acceptance by the state regulatory authority before they can be utilized. This approach ensures that the rates charged by insurers are adequately vetted and are not unfairly discriminatory or excessively high, thus protecting consumers from potential exploitation. The regulatory authority conducts a thorough review of the proposed rates based on various factors such as loss experience, expenses, and economic conditions.

This method contrasts with other approaches that might allow for rates to be implemented without prior approval, thus ensuring that there is a mandatory step of regulatory scrutiny in place to maintain market stability and fairness for policyholders.