Testimony in OPPOSITION to HB 4767, “AN ACT concerning regulation”, and HB 4611, amending the Illinois Insurance Code
Testimony from:
Alan Smith, Senior Fellow and Midwest Director
R Street Institute
Testimony in OPPOSITION to HB 4767, “AN ACT concerning regulation”, and HB 4611, “ Section 5. The Illinois Insurance Code is amended by adding Section 143.19.4 dding Section 143.19.4 as follows:…”
March 5, 2024
House Insurance Committee
Chairperson Jones, Vice Chairperson Morgan, Republican Spokesperson Keicher and members of the House Insurance Committee,
My name is Alan Smith. I am the Midwest Director of the R Street Institute, a nonprofit nonpartisan public policy research organization which has been engaged on property and casualty insurance issues since its founding. Our research has been supportive of limited government and market-based solutions to solve many of the challenges of the 21st century economy.
Illinois is being encouraged by some of your colleagues to change its system of auto insurance to be more in line with what California and Colorado have done over the last few years. Even though the California model, largely instituted through Proposition 103 in 1988 was successfully challenged and did not deliver on its main feature, a 20% rate cut, there are other parts which have been promoted occasionally by people frustrated by the price of insurance.
HB 4767 is one such proposal, which should prompt us to take a hard look at any evidence of insurance customer benefit. The proposal to allow “any person” to “intervene in any proceeding” or to “challenge any action” of the insurance regulator is a good place to start, because California allows this. The California Department of Insurance website has this to say about the intervener process: “Interveners who participate in rate filings are allowed to recover costs, expenses and attorney’s fees from insurers, which under law can be passed along to all consumers.” There are claims on both sides, but no reputable evidence that this has helped California drivers keep their auto insurance rates reasonable.
The idea that a legislative committee can come up with something that is fairer to every kind of insured driver compared to technical experts working for years on a new rating system to produce pricing that doesn’t rely on race, neighborhood, income level or other protected factors is not a serious effort to solve a perceived problem. Gender discrimination has been prohibited by California statute and regulation for several years.
More to the point, government-made rates do not allow the companies the flexibility to offset bad years with good ones and risky drivers with those with better records. Many of the major auto insurers have reduced writing in California, because insurance regulation is suffocating the market.
Illinois has 224 licensed insurers writing auto insurance in the state. With an economy that ranks fifth in the world, in 2022 California had 129 carriers licensed to write auto liability insurance, down from 167 five years ago, and headed in the wrong direction. Even that should be enough competition to take care of the companies who want to raise prices without justification, if the heavy hand of government regulation were not present.
Illinois doesn’t need HB 4767, and there is substantial evidence, based on elements copied from elsewhere, that it would not benefit Illinois private or commercial auto insurance customers.
HB 4611 is based on Colorado legislation that has not been a solution either. Bearing in mind that all insurance prices are guesses, since the cost is never known when the policy is sold, any attempt to put something like a difference of opinion over “reasonable correlation” at the core of insurance profitability is only going to make the actuaries guess high, because no other industry sees as much court time as the property and casualty insurance industry does.
By the way, you might be interested in a headline in the Denver Post Business section five days ago:
“Auto insurance premiums are increasing rapidly in Colorado. If you’re paying more, The Denver Post wants to hear from you.”
If the General Assembly cares about its insured drivers, neither of these approaches is likely to end up being kind to most of them.
Alan B. Smith
Senior Fellow/Midwest Director
R Street Institute
(614) 893-9999
[email protected]