Illinois Bills Risk Higher Auto Insurance Costs by Ignoring Risk-Based Pricing Principles

In Illinois, two proposed bills (HB 4767 and HB 4611) have sparked concerns among insurance industry experts for potentially increasing personal auto insurance costs and harming consumers they aim to protect. These bills, including a similar attempt in 2023 (HB 2203), propose changes to the state’s insurance rating laws, specifically prohibiting the consideration of non-driving factors in premium rate setting. This approach, criticized by organizations such as the American Property Casualty Insurance Association, the Illinois Insurance Association, and the National Association of Mutual Insurance Companies, could lead to reduced competition and higher costs for Illinois drivers by disconnecting insurance prices from the underlying risk of loss.

Risk-based pricing is a fundamental insurance principle that assigns premiums based on the risk profile of the insured, ensuring that higher-risk drivers pay more and lower-risk drivers pay less. Critics of the proposed bills argue that such legislation reflects a misunderstanding of how risk-based pricing contributes to insurance affordability and availability by allowing insurers to underwrite a broader range of risks. The controversy highlights a broader debate over the fairness of using certain factors, such as credit scores and geography, in determining insurance rates—a practice some argue could lead to indirect discrimination.

Despite these concerns, the Insurance Information Institute (Triple-I) and other industry bodies emphasize the importance of risk-based pricing in maintaining the balance between coverage affordability and the insurer’s ability to cover losses. They advocate for legislative efforts to address the root causes of rising insurance costs, such as riskier driving behaviors and legal system abuses, rather than restricting insurers’ ability to price risk accurately.