Column: Illinois auto insurance regulation needs an overhaul

Insurers say they need to raise rates because traffic is up from 2020 lows and inflation has boosted the cost of auto repairs.

In some states, insurers’ rationale for rate hikes would undergo scrutiny from expert regulators with the power to block the increases. In Illinois, we take insurers’ word for it.

Now, there are good reasons to require that drivers buy auto insurance. But if the state forces us to purchase a product, it should also protect us against the price-gouging such a requirement invites.

Many other states provide that protection, to varying degrees. A 2019 study by the Consumer Federation found that 21 states require regulatory approval of some or all rate hikes. Another 19 at least require that insurers notify regulators before raising rates. Illinois is one of only nine states that require filing only after insurers have boosted prices.

The Consumer Federation study shows that stronger regulation reins in rate hikes over the long term. Between 1989 and 2015, the weighted average annual auto insurance expenditures in states requiring prior regulatory approval of rate changes rose 45%, compared with a 70% weighted average for “use and file” states like Illinois.

California, the state with the strictest prior approval regime, had the lowest average expenditure increase—just 12.5% ​​over a 26-year period that saw the national average climb 61.1%. In Illinois, the average expenditure rose 59%.

True, auto insurance premiums are higher in California than in many other states, including Illinois. Premiums reflect risk levels driven by factors such as density and traffic congestion. California has some of the highest traffic congestion in the country, leading to higher rates. But it’s also worth noting, as Heller points out, that California hasn’t allowed any auto insurance premium increases since the pandemic hit, and required more rebates of 2020 profits than other states did.

Rates in California would be far higher without prior approval, according to the Consumer Federation, which estimates the stricter regulatory approach has saved Californians $154 billion since 1989. What’s more, the group estimates California-style rate regulation would have saved Illinoisans $1.9 billion in 2015 alone.

The study also shows tougher consumer protection doesn’t squelch insurers’ profits or send them fleeing from the state. Insurers in prior approval states earned average returns on net worth of 7.99%, above the national average of 7.69%. As for competition, California is one of the least-concentrated markets, and Illinois is one of the most concentrated.

At a time when historically high inflation is punishing Illinois consumers, it’s getting harder to justify a regulatory system that leaves them powerless against price hikes in a product the state requires them to buy.

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