After State Farm home insurance rates spiked an average of 27% last summer, Gov. JB Pritzker kicked off a campaign for tighter insurance regulation in Illinois. Now, the whirlwind of negotiations, proposals, and failed legislation that ensued could be nearing an end as two bills recently passed out of the Senate.
If the legislation passes through the House, insurance companies would be required to notify customers before implementing any large rate increases, and the Department of Insurance would review and approve all rate changes to ensure they aren’t unfair, excessive or discriminatory.
“Illinois consumers deserve consistent, commonsense protections whether they’re insuring their home or their car,” said a spokesperson from the governor’s office in a statement. “This legislation helps ensure insurance companies are held to the same standards of accountability. At a time when costs are rising, it’s important that rates are fair, justified, and transparent. Gov. Pritzker has consistently supported and called for action to move this forward.”
But this isn’t the first time lawmakers have taken a stab at insurance regulation, and it might not be the last.
Over the last year, two other similar bills have come just inches away from the finish line, often meeting heavy pushback from the state’s powerful insurance lobby.
Kevin Martin, executive director of the Illinois Insurance Association, warned that excessive regulation could drive insurers out of Illinois and wreck the state’s competitive insurance market.
“This legislation is going to do nothing more than reduce competition, which Illinois has prided itself on for 50 years,” Martin said. “When you reduce competition, all you’re going to do is increase the cost, and that’s the bottom line.
Separating home and auto insurance regulation
Lawmakers have gone back and forth on how to best separate home and auto insurance regulations.
The first attempt at regulation came during last fall’s veto session. But that bill only included home insurance and was shot down on the House floor, with lawmakers calling for the inclusion of auto insurance regulation.
Fast-forward to March, the Illinois House listened and amended a bill to extend its coverage to auto insurance.
Under that bill, home and auto insurance were covered with the same specifics. Insurers would have had to notify customers of any rate increases of 10% or more 60 days before they go into effect. After going into effect, the DOI would have 60 days to approve rates and could force insurers to refund customers if the department determined that the rates were unfair.
After the bill passed the House, the Senate split it in two, designating one for home insurance and the other for auto insurance, and tailoring the specifics to fit each area of coverage.
The changes left the home insurance timeline for notification and review the same, but lightened the burden for auto insurers by giving them 30 days to notify customers of substantial rate increases and 40 days to have their rate change reviewed by the DOI.
How should the DOI review rates?
A sticking point in negotiations has been how much control the DOI should have over insurance rates.
Consumer-focused groups like Illinois Public Interest Research Group have pushed for a “prior approval” system that would require insurers to get the DOI to sign off on any rate increases before implementing them. Pro-insurance groups are okay with the DOI having regulatory power, but want it to be limited.
The legislature has landed somewhere in the middle. Under the current bills, the DOI has a window of time after a rate change to decide if it’s unfair. If the DOI strikes down a rate change, insurers would have to offer refunds to their customers.
“It falls well short of what we want,” said Abe Scarr, director of Illinois PIRG. “But… since there would be a material improvement over the status quo, we think it’s worth supporting.”
Defensive driving discounts
The auto insurance legislation also makes it easier for senior citizens to qualify for defensive driving discounts by reducing the course length from eight hours to four. It was a provision championed by the AARP and secretary of state’s office.
The insurance industry isn’t quite on board, though they aren’t opposed either.
“As we age, you may not be knowledgeable as to what all the rules of the roads are,” Martin said. “I guess time will tell whether or not we’re going to see more accidents.”
Where does the insurance industry stand?
While not in support of either bill, Martin says they have worked the home insurance legislation to a place they can be comfortable with, but still oppose auto insurance regulations.
“We have the sixth lowest auto insurance premiums in the country, so what are we trying to resolve here?” Martin said, referencing a study by U.S. News & World Report. “Illinois is the home of over 200 companies that write auto insurance coverage, and we want to continue to see that so that our policyholders are paying less than what a policyholder in another state, because of how they’re regulated, would have to pay.”
Concerns about cost shifting
Issues around State Farm’s rate hike came from concerns that nationwide insurers could be raising state costs to help offset losses in other areas of the country, like those associated with wildfires in California, or hurricanes in Florida
Under the most recent bills, state lawmakers included provisions preventing insurers from using non-Illinois specific data to justify price increases.
“Whats happening in general across the country is that the industry is trying to blame regulation when it’s not the regulations itself as much as the increase in risk from the increases in extreme weather.”
How close is the finish line?
The two bills now sit in the House awaiting action ahead of a May 31 deadline.