Illinois bill on auto insurance rate-setting rules draws industry's ire
The Motor Vehicle Insurance Fairness Act would prohibit certain underwriting and rating actions deemed discriminatory.
The Illinois legislature is considering a proposal that would restrict auto insurance underwriting and rating practices that use nondriving factors, such as credit scores, and increase the Illinois Department of Insurance’s ability to reject or modify rate increases.
Dubbed the Motor Vehicle Insurance Fairness Act, the bill would prohibit insurance companies from refusing to issue or renew a personal auto policy based on prohibited factors, including sex or gender, marital status, race, creed, national origin, religion, age, occupation, education level, home ownership, credit reports or scores, the absences of prior insurance or “any measure of a consumer’s price elasticity of demand,” according to the bill’s text.
Additionally, the bill would require insurers to demonstrate that their “marketing, underwriting, rating, claims handling fraud investigations and any algorithm or model used for business practice” aren’t have an outsized effect on any group of customers based on race, national origin, religion, sexual orientation, disability or other protected class.
The bill also states that no rate “shall be approved or remain in effect” that is excessive, inadequate or unfairly discriminatory. Further, insurers wishing to make any rate change would need to file a complete rate application with the state’s director of insurance. Any information provided to the director of insurance would be made available for public inspection.
The bill would also allow any person to initiate or intervene in any proceeding, as well as challenge any action of the director of insurance, “permitted or established” by the proposal.
To support the provisions should they be passed into law, the bill would allow the state’s insurance department to collect a fee from insurance companies of 0.05% of the total earned premium from the prior calendar year.
According to the Illinois Public Interest Research Group (PIRG), the bill comes on the heels of auto insurers collecting $896 million in excessive profits during 2020 and having raised rates by more than $1.1 billion in 2022.
“It’s time for the legislature to protect Illinois consumers and ensure fairness in our car insurance market,” Illinois state Rep. Will Guzzardi said in a release. “Discrimination is wrong, profiteering is wrong and this bill will put an end to those practices in insurance rate-setting in Illinois.”
According to the PIRG, Illinois is just one of the few states that don’t “protect insurance customers from excessive or unfair rates.” The consumer advocacy group claimed that the average Illinois car insurance rate increased by 18% in 2022, more than in all but one other state.
Industry finds Insurance Fairness Act unfair
The proposal drew a sharp rebuke from P&C industry trade groups, who called the bill bad public policy that would “harm consumers, reduce competition and increase litigation.”
In a joint statement, the National Association of Mutual Insurance Companies, American Property Casualty Insurance Association, and the Illinois Insurance Association reported that “the bill claims to seek insurance accountability and fairness. Yet, if insurers are unable to utilize risk factors when determining rates, it will lead to a one-size-fits-all approach to pricing, eliminating competition in the marketplace, and ultimately driving prices up for all consumers.”
The trade groups noted that Illinois currently has an extremely competitive auto insurance market, with around 230 companies offering policies in the state. This competition helps to keep rates in the state low, as Illinois auto insurance rates are 15.5% lower than the national average.
“To enforce the provisions of this legislation a massively expanded state bureaucracy to carry out these regulations will be necessary, the cost of which is also borne by consumers. The legislation will have exactly the opposite effect that the proponents seek,” the groups wrote.
The industry has also taken umbrage to the allegations made by PIRG. Calling advocacy group’s report misleading, the trade group collective said the call to reduce insurance premiums shows a lack of understanding on how auto insurance pricing works, and ignores recent road safety data and accident trends.
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