Although domiciled in Nebraska, Auto Insurance is licensed to sell auto insurance in 10 states. A different set of rates applies in each state. In five states, prior approval of rates is required. Two states have a file-and-use law, and the remaining three states have a flex-rating law. Auto Insurance has experienced poor underwriting results and needs to increase its rates.
a. Explain how each of the above rating laws would apply to Auto Insurance.
b. Describe some possible problems that Auto Insurance may experience in trying to get its rates increased in a prior-approval state.