Illinois citizens have long benefited from a strong, competitive insurance marketplace, one that created a buyer’s market for auto and homeowners needing insurance protection. Pending legislation in the State Senate would likely change what is working well, replacing it with a bureaucratic process that threatens to drive up insurance premiums.

Senate Bill 1486, Amendment 2 will bring unwelcome changes to the insurance regulatory system in Illinois that will hurt consumers. In fact, it is very likely the changes will raise premiums, limit consumer choice, and bring instability to the marketplace. This is a “fix” that will break what is not broken.

Illinois currently has what is called a “use-and-file” regulatory system. This is a common method used by many states that allows insurance companies to begin phasing in new rates as policies renew and to support those rate decisions by filing actuarial documentation to explain why the rates are needed. The Department of Insurance in these states reviews the submitted documents to ensure the rate increase is justified.

Proposed legislation in Illinois desires a “prior approval” model, requiring insurers to submit proposed rate increases before implementation. It also puts a cap on the percentage of a rate increase allowable in any given year. Sounds good only on paper. In the real world, delays in reacting to the reality of rising costs (due to inflation, severe weather and higher claims volume) means insurers cannot keep up with those very real costs, so they retreat. Consumers get fewer choices and higher prices. California tried this tactic, and became a classic case of “What Not to Do” as many insurers fled that marketplace. Would it not be wise to learn from that state’s missteps instead of following in their footsteps?

Illinois does not have California’s wildfires, yet a significant rise in severe storms and tornadoes has insurers paying out more in losses and expenses than they have collected in premiums. In 2023 alone, homeowner insurers in Illinois had an underwriting loss of 30.3%; over the past decade underwriting losses have averaged 8.3% -- and that means premiums are lower than the actual risk.  Underwriting losses for auto insurers averaged 2.7% over the past decade, while Illinois auto insurance rates are 18% below the national average.

Before instituting legislation that seems destined to harm consumers by increasing insurance rates, consideration should be given to having an independent research study on the effect of drastic regulatory changes on insurance markets. Illinois universities have risk management/insurance scholars with the expertise to provide legislators with an understanding of what has worked and which actions caused needless disruption. Consumers across Illinois are depending on their legislators to get this right. Let’s take the time to make well-informed decisions.

Lynne McChristian, Former Director (retired), Office of Risk Management & Insurance Research at the University of Illinois, Urbana-Champaign.