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Column: Illinois auto insurance regulation needs an overhaul

  • August 31, 2022

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

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