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

Strategic Insights -

Insurance officials testified during a Senate Insurance Committee meeting, pushing back against criticisms that recent rate hikes are an attempt to pass on costs from other natural disasters. They cited inflation and climate change as primary factors driving premium increases. The officials argued that Illinois's lack of regulatory authority over homeowners insurance rates is a key factor in the issue.

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 growing more frequent.
  • Both the average annual losses and the number of billion-dollar-plus disasters in Illinois have dramatically increased over the last several years.
  • Nat Shapo, a former director of the Illinois Department of Insurance, testified that the primary job of state regulators should be to ensure insurance companies remain solvent, not to cap premiums.
  • Shapo argued that regulating premiums can lead to market instability and higher prices for consumers.
  • Insurance officials cited inflation and climate change as primary factors driving premium increases.
  • Illinois is the only state whose insurance regulators do not have authority to review and either approve, modify 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.
  • 13 of the last 15 years State Farm lost money in its homeowners' line of business.
  • Illinois has dramatic increases in average annual losses and the number of billion-dollar-plus disasters over the last several years.
  • 50 years of competition have resulted in very good insurance rate regulation outcomes in Illinois, according to Nat Shapo.

Sources:

  • Capitol News Illinois
  • Robert Gordon, senior vice president at the American Property Casualty Insurance Association
  • Nat Shapo, former director of the Illinois Department of Insurance