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

Insurance officials testified this week in a Senate Insurance Committee hearing that recent homeowners insurance rate hikes are necessary due to rising inflation and increasing climate-related property losses. The officials pushed back against criticisms from Governor JB Pritzker and legislative leaders, who suspect that the rate increases are an attempt to cover losses from natural disasters elsewhere in the country.

The officials emphasized that property losses from natural disasters are common in Illinois, with both the average annual losses and the number of billion-dollar-plus disasters increasing dramatically over the last several years. They argued that attempts to regulate their ability to set rates would be bad for consumers and could lead to some carriers leaving the market, driving up prices for consumers.

Robert Gordon, a senior vice president at the American Property Casualty Insurance Association, noted that Chicago is the most at-risk major city for severe convective storms, which include thunderstorms, hail, and tornadoes. Calls for regulation have been made in response to State Farm Insurance's announcement of a 27.2% average premium increase for residential property casualty insurance in Illinois.

Key Takeaways:

• Insurance officials attribute recent rate hikes to inflation and climate change, not out-of-state costs.
• Property losses from natural disasters, including wild fires and hurricanes, are a growing concern in Illinois.
• Average annual losses and billion-dollar-plus disasters in Illinois have increased dramatically over the last several years.
• Robert Gordon emphasized that Chicago is particularly susceptible to severe convective storms.
• The Illinois Department of Insurance does not have authority to review or regulate homeowners insurance premiums.
• Insurance officials contend that market competition, not regulation, is the best way to keep rates affordable for consumers.
• Nat Shapo, a former director of the Illinois Department of Insurance, testified that the primary job of regulators is to ensure that insurance companies remain solvent.
• Regulating premiums too strictly could drive some carriers out of the market, leading to increased prices for consumers.

Statistics:

• Average annual losses from natural disasters in Illinois have increased over the last several years.
• The number of billion-dollar-plus disasters in Illinois has increased dramatically over the last several years.
• Chicago is the most at-risk major city for severe convective storms.

Sources:

• Pritzker, JB. Statement on homeowners insurance rate hikes, July 2023.
• American Property Casualty Insurance Association. Testimony of Robert Gordon, Senate Insurance Committee hearing, Wednesday, 2023.
• State Farm Insurance. Press release announcing average premium increase for residential property casualty insurance in Illinois, 2023.
• Nat Shapo. Testimony, Senate Insurance Committee hearing, Wednesday, 2023.
• Capitol News Illinois. Nonprofit, nonpartisan news service, distributing state government coverage to hundreds of news outlets statewide.