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Prior approval vs file-and-use: do regulated states pay more or less?
What the research and state data show about auto rate-filing regimes and prices, why the comparison is confounded, and how California and Texas contrast.
The evidence does not show that tighter rate regulation produces cheaper car insurance, and it does not show the opposite either. Studies from the 1980s and 1990s found that regulation modestly lowered insurers' prices relative to claims but reduced the number of drivers insurers would voluntarily cover, and one NAIC-published study found higher claims costs in regulated states. A 2024 industry-funded report found no consistent price advantage for prior-approval states. Simple state averages do show prior-approval states costing more on average, but that group includes some of the densest and most expensive places in the country, so the gap says little about the rule itself.
This article defines the regimes, reports what the studies and the NAIC data show, explains why comparisons mislead, and contrasts California and Texas.
The five regimes
States regulate auto rates in several ways. The labels below follow the National Association of Insurance Commissioners' tables, with definitions from the academic literature.
| Regime | How it works | Typical examples (NAIC, current) |
|---|---|---|
| Prior approval | The insurer must file rates and wait for approval, or for a "deemer" date when the filing counts as approved, before using them | California, Florida, Georgia, Hawaii, Michigan, New Jersey, New York, North Carolina, Pennsylvania, Washington |
| File and use | The insurer files and may use the rates at once or after a short waiting period; the regulator can disapprove them | Colorado, Maryland, Massachusetts, Ohio, Texas, Virginia |
| Use and file | The insurer uses the rate and files it afterward within a set time | Arizona, Illinois, Iowa, Missouri, Utah, Wisconsin |
| Flex rating | Changes inside a "band" need no prior approval; changes outside it do | Kentucky, South Carolina, Rhode Island (with hybrids) |
| No filing | Rates are produced on the regulator's request | Wyoming |
Regan, Tennyson and Weiss, in a 2009 study published by the NAIC, describe the first two groups this way: under prior approval, insurers must file rate requests before applying them, and the commissioner's office reviews the structure across risk classes and territories, expenses and margins; under "competitive" systems, most states use file and use or use and file, in which insurers use rates subject to the regulator's later approval, and rates that are not approved must be withdrawn. A 2008 working paper by Jason Strauss describes flex rating as allowing an insurer to change rates within a "flex band" without prior approval, with prior approval required outside it.
Which states fall where
Counting the 50 states and D.C., the NAIC's Table 38B in its 2022/2023 Auto Insurance Database Report (published 2025) lists 17 jurisdictions as prior approval, 18 as file and use, 9 as use and file, six as flex or hybrid (Alaska, Kansas, Kentucky, Rhode Island, South Carolina, Tennessee), and one, Wyoming, as no filing. Several details complicate the labels:
- Hybrids are common. The NAIC's notes say Kentucky is use and file unless a change exceeds plus or minus 25 percent, which triggers prior approval. North Dakota is prior approval but allows a use-and-file filing under 5 percent once a calendar year. Rhode Island permits flex rating within plus or minus 5 percent in 12 months.
- Labels shift. The same table shows Louisiana moving from prior approval (2020 to 2022) to file and use, and D.C. moving from file and use to prior approval. Industry researchers at Milliman note that Michigan went to prior approval in 2020, and the NAIC table's note for Louisiana refers to a 30-day review period effective May 7, 2024.
- Labels can hide the substance. Massachusetts, which for decades had the state fix rates, is listed as file and use today (massachusetts' switch from fixed rates to managed competition). Florida's note says the statute's text reads "File and Use" although insurers may use and file at the risk of refunds.
- Every regime keeps a veto. Milliman writes that in most states regulators can review rates and disapprove those they find inadequate, excessive or unfairly discriminatory. What prior approval adds is a bar on use until approval or a deemer date.
The general mechanics are in how car insurance rate approval works, and to read an actual filing see How to read a car insurance rate filing on SERFF.
What the research found
Researchers have asked three separate questions: do regulated states have lower prices, do they have fewer drivers in the voluntary market, and do they have higher claims costs? The answers have changed with the decade studied.
| Study | Data period | What it reports | Caveat |
|---|---|---|---|
| Early studies cited by Suponcic and Tennyson (NBER, 1998) | Late 1960s to early 1970s | Regulation raised unit prices, possibly by promoting collusion | A period when nearly every state regulated, so little variation to compare |
| Later studies cited in the same chapter | Mid-1970s onward | Lower unit prices in regulated states: reductions of 0.03 to 0.07 on average, larger in a few states | Unit price is premium per dollar of losses, not the premium a driver sees |
| Grabowski, Viscusi and Evans (1989), as summarized in the same chapter | Not stated in the summary | Stringent regulation reduces availability, measured as the share of drivers who can buy in the voluntary market | Strongest in a few highly regulated states |
| Suponcic and Tennyson (1998) | 1987 to 1992 | Effects on market structure are "very weak" in most regulated states, but stringent regulation lowers the number of firms and the share of low-cost national insurers | The authors avoid normative conclusions |
| Regan, Tennyson and Weiss (NAIC, 2009) | 1990 to 1998 | Bodily injury and property damage liability loss costs and claim rates are higher in regulated states | Controls for reverse causation, but the sample is 1990s state data |
| Milliman for NAMIC (2024) | Mostly 2013 to 2022 | Prior-approval states do not generally have lower premiums or better affordability | Funded by an insurer trade group |
Sources: the Suponcic and Tennyson chapter, the Regan, Tennyson and Weiss paper and the Milliman report.
Three patterns run through these papers.
The mechanism for higher costs is about incentives, not the filing step. Regan and colleagues argue that regulation which holds prices below competitive levels, or compresses rates so that low-risk drivers subsidize high-risk ones, weakens incentives to control losses. They stress that it is the reduction of prices below competitive levels, "not prior approval regulation per se," that drives the effect. They also report that research has found no evidence that rate regulation reduces uninsured driving.
Availability is the other recurring finding. When a regulated price falls below expected losses for some drivers, insurers have a reason to avoid them, and those drivers end up in the residual market. Suponcic and Tennyson spell this out in a footnote about rationing. Milliman reaches a similar view from the industry side: a high degree of rate-level control can grow the residual market, through insurers cutting back or leaving.
A pro-regulation case also exists, and it is contested. The Consumer Federation of America reported in 2018 that California's Proposition 103 had saved drivers $154 billion and that liability premiums fell in California after 1989 while rising 58.5 percent nationwide. The Property Casualty Insurers Association of America replied that other reforms, such as court decisions, safety laws, seat belt use and safer cars, explain the decline. That dispute shows why a before-and-after comparison cannot settle the question alone.
How old is the evidence? Most of the academic work cited here uses data from 1987 to 1998. The most recent source uses 2013 to 2022 data and was funded by an interested party. Treat the research as a map of arguments, not a settled finding.
What the NAIC data show
Here is a simple check using only the NAIC's published tables. I grouped states by their 2022 rate-filing label (Table 38B) and used each state's 2022 average expenditure per insured vehicle (Table 4) against the national figure of $1,124.57. The means are unweighted averages of state figures, so a small state counts as much as a large one.
| 2022 filing regime | States | Mean average expenditure | Median | States above national average | Range |
|---|---|---|---|---|---|
| Prior approval | 17 | $1,170 | $1,087 | 8 | $729 (North Dakota) to $1,568 (Florida) |
| File and use | 18 | $1,025 | $954 | 6 | $767 (Maine) to $1,501 (D.C.) |
| Use and file | 9 | $921 | $959 | 1 | $772 (Idaho) to $1,155 (Arizona) |
On its face, the more regulation, the higher the average. But the ranges overlap almost entirely, and the prior-approval group holds both the cheapest state in the table and the most expensive. Read the table as a description of where the labels fall, not as a measurement of what the rule does.
Why the comparison is confounded
At least four things get in the way.
- Reverse causation. Regan and colleagues note that high prices may lead voters to demand rate regulation. States that adopt prior approval may be states that already had high costs.
- Different states, different costs. The NAIC lists the factors that move premiums: weather, driving locations, accident rates, traffic density, theft, repair costs, population density, medical and legal costs and per capita disposable income. It adds that high-premium states tend to be highly urban, with higher wage and price levels, and greater traffic density.
- Bundled rules. Prior approval often arrives with other rules. Six of the 17 prior-approval states in 2022 (Florida, Hawaii, Michigan, New Jersey, New York and North Dakota) are classed by the NAIC as no-fault, against four of the 18 file-and-use states (Delaware, D.C., Massachusetts and Minnesota) and one of the nine use-and-file states (Utah). No-fault design affects premiums by itself; see Do no-fault states really cost more? Comparing premiums by system. Some prior-approval states also restrict rating factors, as California does.
- Measurement. The NAIC's average divides all premium by liability car-years, so it mixes liability-only and full-coverage cars. The NAIC cautions that comparing states should be done with a high degree of caution. For help with such data, see What NAIC auto insurance data measures.
California and Texas: two ways to do it
The two biggest auto markets use opposite regimes, which makes them a natural comparison. It is also a weak one, because only two states are involved.
California: prior approval with public intervenors
A 2023 California Senate committee fact sheet summarizes the system. Proposition 103, passed by 51.2 percent of voters in 1988, required prior approval of auto, homeowners and casualty rates and, according to the same fact sheet, before it insurers did not have to file rates with the Department of Insurance. The process has several clocks:
- A rate change is deemed approved 60 days after public notice unless a consumer requests a hearing within 45 days and the commissioner grants it, the commissioner decides to hold one, or the request exceeds 7 percent, in which case a hearing must be held on timely request.
- A change above 7 percent is deemed approved 180 days after receipt unless disapproved after a hearing or "extraordinary circumstances" exist.
- Any person may intervene in a rate proceeding, and the applicant pays reasonable fees of intervenors who substantially contribute.
The result is slow. Milliman's table of average days from filing to disposition for the top 10 insurers shows California at 117 days in 2013, 242 in 2017, 372 in 2021 and 209 in 2022, against an average of 60 to 97 days across prior-approval states. It reports that the last non-neutral personal auto filing approved before the pandemic was on December 20, 2019. The sponsor is an insurer trade group, so weigh that, but the pattern is consistent with the 180-day clock and the hearing process above. The state's own rules are in California Proposition 103 explained and its consumer-intervenor route is in rate hearings and intervenors: how the public challenges an increase.
Texas: file and use
Texas replaced a promulgated (state-set) rate with a file-and-use system through Senate Bill 14 in 2003. A legislative analysis from 2015 says the law lets insurers charge new rates without the commissioner's prior approval, though they must still submit rates and supporting data for review. The 2003 bill analysis, written as the bill was introduced, described a 60-day waiting period before a filed rate takes effect unless disapproved. A Texas Department of Insurance presentation in June 2022 classes "rates / rules" as file and use, and notes that a 2021 law (SB 965) now requires actuarial support from personal auto insurers that previously escaped it.
What the numbers say
| Measure, 2023 (NAIC) | California | Texas | National |
|---|---|---|---|
| Rate-filing regime | Prior approval | File and use | n/a |
| Average expenditure per insured vehicle | $1,225.02 (18th of 51) | $1,428.94 (13th) | $1,281.92 |
| Combined average premium | $1,417.94 (17th) | $1,726.91 (6th) | $1,438.60 |
| Average expenditure relative to national, 2019 and 2023 | 98% and 96% | 106% and 111% | 100% |
On these measures California is cheaper than Texas and slightly below the national average, and Texas has moved further above it. Someone arguing for prior approval could cite that. Someone arguing against it could point to the California approval delays, Milliman's view that delay increases volatility, and the earlier point about Proposition 103's rating restrictions, which are separate from the filing step. Both states are tort states, not no-fault, according to the NAIC. They differ in weather, density, litigation and repair markets too. Two data points cannot separate those factors.
Speed: how fast rates can change
The one effect that is easier to observe than prices is timing. Under prior approval, an increase cannot take effect until the review ends; under file and use, it can start sooner. That matters most when costs move fast. Milliman reports that the average filing-to-disposition time across prior-approval states rose from 60 days in 2013 to 97 in 2022, and that in New Jersey it went from 34 to 108 days over the same period. It also cites a company, Wawanesa General, that filed for an increase in December 2021, was downgraded by AM Best a year later and received approval in March 2023. Its argument is that slow approvals leave insurers exposed when costs rise, and in falling markets may leave rates high.
The statutory clocks differ. Hawaii allows a 30-day waiting period extendable by 15 days. California uses 60 and 180 days. Massachusetts requires filing at least 45 days before the effective date. See from filing to your bill: the timeline of an auto rate increase for how a filing reaches your renewal notice.
How to describe the findings carefully
Because the evidence is mixed and confounded, wording matters. These contrasts show the difference between a defensible sentence and an overreach.
| Defensible | Overreach |
|---|---|
| "Prior-approval states had higher average expenditure in 2022 in NAIC data, but the groups overlap." | "Prior approval raises prices." |
| "1990s research found higher loss costs in regulated states after controlling for reverse causation." | "Regulation makes accidents more expensive." |
| "Industry-funded research finds no consistent premium advantage for prior-approval states." | "Studies prove prior approval does not help consumers." |
| "California's average is below Texas's, and the two states differ in many ways." | "Prop 103 explains California's premiums." |
| "Approval times are longer in some prior-approval states." | "Prior approval is slow everywhere." |
What this means for your own premium
- Find your state's regime in the NAIC report or your regulator's site, and confirm it with state car insurance requirements lookup and what your state insurance department does. Rules vary by state and change.
- Remember what the regime controls. It governs a company's average rate level and rating plan, not the price you are quoted, which still depends on your own risk profile.
- Look for pending filings if your state publishes them, since a filing can show an increase months before your renewal.
- Shop anyway. In every regime, companies file different rates, so comparing at renewal remains the main tool.
- Use the process where it exists. California lets consumers petition for a hearing; many states take comments.
Common questions
Does prior approval mean the state sets my price?
No. The insurer files its own rates and the regulator reviews them. Fixed-and-established rates, as Massachusetts used until 2008, are a different system.
Are file-and-use states unregulated?
No. Regulators there can still review filings, disapprove rates that are excessive, inadequate or unfairly discriminatory, and require supporting data. Wyoming, listed as "no file," is the outlier.
Which system is better for consumers?
The research I opened does not answer that. It points to trade-offs among price, availability and speed, and the effects depend on how strict the regulation is.
Why do some states change systems?
The NAIC's table shows Louisiana moved to file and use and D.C. to prior approval, and Milliman notes that Michigan adopted prior approval in 2020. Lawmakers usually cite affordability or availability, but the reasons vary by state.
Key takeaways
- States use prior approval (17 jurisdictions in the NAIC's current table), file and use (18), use and file (9), flex or hybrid systems (six) or no filing (Wyoming).
- Research from the 1980s and 1990s found small price reductions but less availability under strict regulation, and one NAIC-published study found higher loss costs; a 2024 industry-funded report found no consistent price advantage.
- In 2022 NAIC data, prior-approval states averaged $1,170 per vehicle against $1,025 for file-and-use states, but the ranges overlap and the groups differ in density, no-fault design and other drivers of cost.
- California (prior approval) averaged $1,225 in 2023 and Texas (file and use) $1,429, with approval times in California often exceeding six months.
- Describe findings as associations, name the data year, and check your own state's rules and clock.