Insurance Industry Officials Defend Rate Spikes, Citing Climate Change and Inflation

Insurance officials testified in a Senate Insurance Committee hearing on August 20, defending recent rate hikes for homeowners insurance in Illinois. They blamed climate change and inflation for the increases, warning that regulation of their ability to set rates would be bad for consumers. The officials pushed back against criticisms by Governor JB Pritzker and legislative leaders who accused them of shifting costs from out-of-state natural disasters to Illinois homeowners.

Key Takeaways:

• Robert Gordon, senior vice president at the American Property Casualty Insurance Association, stated that property losses from natural disasters are common in Illinois and have been increasing in frequency.
• Gordon cited Chicago as the most at-risk major city for severe convective storms, which include thunderstorms, hail, and tornadoes.
• The average annual losses and the number of billion-dollar-plus disasters in Illinois have dramatically increased over the last several years.
• Insurance officials, including those from State Farm Insurance, disputed claims that they are shifting costs from out-of-state natural disasters to Illinois homeowners.
• Nat Shapo, a former director of the Illinois Department of Insurance, testified that the primary job of state regulators is to ensure that insurance companies remain solvent, not to cap premiums.
• Shapo recommended relying on market competition to keep rates affordable, rather than regulating premiums.
• The Illinois Department of Insurance does not have authority to review and approve or reject proposed premium changes in the homeowners insurance market.

Statistics:

• 27.2% average increase in premiums for residential property casualty insurance in Illinois, announced by State Farm Insurance.
• 50 years of using competition as a regulator of insurance rates in Illinois, cited by Nat Shapo.
• 13 of the last 15 years, State Farm Insurance has lost money in its homeowners' line of business.
• Increase in the number of billion-dollar-plus disasters in Illinois over the last several years.

Sources:

• State Farm Insurance
• Illinois Department of Insurance
• American Property Casualty Insurance Association
• Capitol News Illinois