Lynne McChristian: Don't import California's shortsighted insurance regulation policies

Chicago Tribune

19-02-2025

A recent Tribune editorial accurately points out that California stands in stark contrast to Illinois as a cautionary tale on how to destroy a healthy insurance market. California's insurance regulators have used their regulatory authority to keep premiums artificially low. As a result, many California insurers pulled back from the marketplace, leaving many Californians unable to find coverage in the private market. And yet, new legislative proposals in Illinois are attempting to import California's shortsighted regulatory policies. Our state lawmakers should recognize how supporting measures to underprice risk will ultimately hurt Illinois policyholders.
Illinois owns bragging rights as a competitive auto and property insurance market. Compared with consumers in other states, Illinois is a buyer's market, and consumers have many choices when selecting an insurance company that best fits their needs. Yes, there have been recent premium increases, driven by the rising costs of materials used to repair damaged cars and property (automotive parts, lumber, roofing materials), higher labor costs and more events that bring insurance claims, such as natural disasters and risky driving behaviors. Yet the cost of insurance in Illinois remains below the national average. Beware of proposed legislation that may sound good in talking points and framed as 'consumer protections' but ignores adverse impacts on the affordability and availability of auto and home insurance.
There is a legislative proposal, SB 268, that seeks to implement California-style rate regulation in Illinois. It is something that 'sounds good,' but its California counterpart has already proved to have had devastating consequences on the Golden State's insurance marketplace. This part is missing from the proposed legislation's talking points, and Illinois need not follow in the footsteps of a failed system.
Consumers want transparency in insurance, and they also should demand transparency in proposed legislation. Among the details in the bill is a ban on the use of credit in insurance pricing. Extensive research has proved the use of credit is actually beneficial to consumers. It saves consumers 30% to 59% on their car insurance. Banning the use of insurance credit scores in pricing insurance in other states has resulted in a major increase for policyholders. Case in point: When the use of credit was banned in Washington in 2021, more than 60% of Washington drivers saw an increase in their premiums. Should legislation pass that banned credit, Illinois could likely see a similar increase, with women and seniors most adversely affected.
The Tribune editorial also calls for more transparency in insurance pricing, and there is proposed legislation calling for so-called 'rate transparency.' Much of the necessary information to understand rising insurance costs already exists. Check the Consumer Price Index. Look at the claims trends on industry websites, such as www.iii.org. Insurance costs reflect reality. Individual insurance premiums are affected by factors that affect all consumers, as well as far-reaching conditions such as inflation and supply chain disruptions, plus factors unique to each person, such as number of miles driven, type of vehicle being driven and accident history. Transparency requirements should focus on providing consumers with concise, actionable information. This is the type of transparency that proactively engages people in taking steps to lower their insurance costs.
It is critical to remember that the best way to keep insurance rates affordable is to maintain Illinois' competitive insurance marketplace. Enacting legislation that has ushered in unintended consequences in other states will hurt our residents financially — at a time when they can least afford it. Transparency works both ways, and it means being clear about what the stakes may be when a marketplace that is working well is manipulated needlessly.
Lynne McChristian is director of the Office of Risk Management & Insurance Research at the University of Illinois at Urbana-Champaign.