Final answer:
Insurers file proposed policy rates with the Department of Insurance under the prior approval plan. Regulation of insurance premiums can lead to insurers withdrawing from markets if they cannot maintain profitability.
Step-by-step explanation:
Under the prior approval plan, insurers file proposed policy rate information with the Department of Insurance.
State insurance regulators have significant influence over the insurance industry, which is primarily regulated at the state level. In efforts to control costs and maintain the affordability of insurance, regulations may be implemented to set low premiums. However, this can lead to unintended consequences, such as insurers avoiding high-risk or medium-risk individuals to minimize potential losses.
The balance between affordable insurance premiums and the necessity for insurers to collect enough in premiums to cover losses is a delicate one. When state legislators impose stringent rules, there is a risk of insurance companies ceasing operations in that state. Instances like these were observed in New Jersey and Florida, where companies withdrew due to regulatory environments that impinged on their ability to operate profitably.