Over the past three years, Illinois drivers have been subjected to a relentless series of price hikes on the insurance they’re required by law to carry.
As the largest insurers serving Chicago—State Farm, Allstate and Geico—repeatedly raise their rates, invariably they’ve justified the moves by pointing to rising claims payouts in Illinois, fueled by more distracted driving and higher repair and health care costs.
But a Crain’s analysis of the losses here suffered by those players from 2014 through 2016 shows that the level of rate hikes in Illinois doesn’t always correspond to the costs the companies are experiencing.
One in particular—Northbrook-based Allstate, the second-largest car insurer in the state—has raised rates more aggressively in Illinois than it has nationally on average over those three years despite losses that significantly trail the company’s national average. That conclusion comes from an analysis of annual marketshare reports issued by the Illinois Department of Insurance coupled with Allstate’s extensive investor disclosures.
Illinois is the only state in the country that doesn’t regulate auto insurance rates at all; it merely demands that insurers notify regulators of changes. Rate regulation in other states runs the gamut from requiring prior approval, like in California and New York, to requiring insurers to file their rates before putting them into effect.
For decades, the industry, its overseers and consumer advocates have debated which is more effective for consumers—forcing companies to justify and get approval for increases, or relying on market competition to keep prices reasonable. For decades Illinois, home to two giants of the business in State Farm and Allstate, has been firmly in the competition camp.
The Rauner administration continues to believe market forces are the way to go. But Jennifer Hammer, Rauner’s insurance director, is increasingly concerned about insurance affordability. She plans to roll out an initiative next year to “stabilize auto insurance rates,” a spokesman says.
“We are working to bring tools and services to (consumers’) fingertips, which will aim to decrease frequency and severity of accidents, while also stabilizing their rates,” Hammer says in an email. Her spokesman offers no other details.
From 2014 through 2016, Allstate raised auto rates in Illinois by nearly 19 percent. Nationally during that time, the company hiked auto prices by 15 percent, according to investor disclosures.
However, Allstate’s loss ratio—the percentage of incurred claims versus earned premiums—was 14 or 15 percentage points lower in Illinois than in the country as a whole during that time. For example, Allstate’s loss ratio in Illinois in 2016 was 60.7 percent, according to Insurance Department data. Nationally, it was 74.7 percent, according to investor materials.
In California, a state that must approve rate hikes before they’re imposed, Allstate hiked auto rates by 12 percent between 2014 and 2016. Its losses there were 5 to 6 percentage points higher than Illinois’ in that time, according to California Department of Insurance data.
An Allstate spokesman didn’t respond to requests for comment.
Illinois drivers insured by Allstate’s arch-rival, Bloomington-based State Farm, also are paying more. But the increases appear more justified.
State Farm’s Illinois rates climbed 11.6 percent between 2014 and 2016. But that was slightly less than State Farm’s 12.8 percent nationally over that time frame. In California, State Farm’s increases totaled 16 percent.
Loss ratios at Illinois’ largest auto insurer basically equaled those nationally in 2014 and 2015. They were lower in 2016. State Farm losses in its home state were 70.7 percent of premiums while they were 77.7 percent nationally.
“State Farm projects each state’s future costs, including claims/losses and expenses, to determine what rates should be,” a spokeswoman writes in an email. “Rate activity and trends vary by state and are influenced by a wide variety of factors. This makes a single state rate comparison vs. a national average an interesting talking point, but impossible to attribute to a single factor.”
Geico, the third largest car insurer in the Chicago area, raised rates more than 22 percent from 2014 to 2016. Its losses in Illinois, however, were much higher than its other large competitors. They were 76.6 percent in 2014, falling to 71.1 percent in 2016.
Still, Geico didn’t raise rates at all in California during that time.
Progressive, the Chicago area’s fourth largest auto insurer, raised Illinois rates about 3 percent in those three years. That’s less than the overall rate increases at Progressive during that time. In California, its hikes totaled 7 percent.
Progressive’s losses in Illinois averaged about 60 percent, about 10 percentage points below its national loss ratios.
Says a Progressive spokesman, “We believe our rates reflect the loss costs and expenses of the Illinois market, adjusted for contingencies and profit targets. We’ve noticed that our rates are even more competitive in the market than in the past.”
Consumer Federation of America, which researches auto-insurance trends, has found that rates in more highly regulated states are generally lower than in free-market states like Illinois.
“Consumers can’t discipline the market,” says Robert Hunter, the consumer advocacy group’s director of insurance. “They don’t get it.”
A November 2013 report by the group found that Illinois was 24th among the country’s states in 2010 in terms of average annual cost for a car insurance policy. In 1989, it was 21st. But California in that time went from third highest priced to 21st. Of course, that study was done before the industry accelerated its price hikes.
“Insurers are expected to set Illinois auto rates based on factors specific to Illinois,” the Insurance Department spokesman says. “The rates should not include losses that occur in other states.”
State law prohibits insurers from “engaging in unfairly discriminatory practices” when setting rates, he says.
“The department is dedicated to intervening when an insurer’s rate is found to be unfairly discriminatory or inadequate,” Hammer says in the statement.
The spokesman didn’t respond when asked if the department was conducting any such investigations.