Illinois bill aims to stop vehicle insurance companies from using consumer information to establish rates

Illinois Secretary of State Alexi Giannoulias is backing a bill that seeks to prohibit insurance companies from using consumer data, such as race, to determine auto insurance rates that he believes are discriminatory.

Giannoulias emphasized the importance of considering an individual’s driving record as the primary factor when determining insurance rates. He made this point during a hearing held by the Illinois House Insurance Committee in Chicago.

Giannoulias urged everyone to consider the numbers and facts rather than listening to the opposing side’s predictions about the potential negative impacts of House Bill 4611. He emphasized the importance of advocating for those who often lack representation and clarified that their goal is not to seek special treatment for Illinoisans, but rather fair treatment from insurance companies.

During the discussion, State Rep. Jeff Keicher, R-Sycamore, raised a question to Giannoulias, inquiring whether he was aware of the existing laws that prohibit companies from engaging in consumer discrimination.

Giannoulias questioned the effectiveness and impact of the measures implemented so far. He expressed concern about the existing disparities in COVID-19 vaccination rates across different areas based on zip codes.

According to Keicher, there should have been a more thorough discussion with the Department of Insurance in order to uncover some of that information. However, this did not occur.

According to Giannoulias, the Illinois Insurance Code prohibits discrimination in a broad sense. However, there is an exception that permits discrimination based on “sound actuarial principles.” Advocates for auto insurance companies argue that collecting the most precise data is the fairest approach.

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State Representative Thaddeus Jones, a Democrat from South Holland, clarified that his bill does not aim to increase taxes.

State Representative Will Guzzardi, a Democrat from Chicago, believes that in the pursuit of fairness, the legislature should prioritize fairness over accuracy. To emphasize his point, he posed a hypothetical question to experts in the field of auto insurance.

Guzzardi questioned whether it would be appropriate to incorporate a rating factor into their pricing system that improved accuracy by 1%, but also resulted in a doubling of rates for Black drivers.

According to insurance experts, when an insurance company is unable to utilize accurate data for matching purposes, it introduces uncertainty into the pricing process.

Lynne McChristian, director of the Office of Risk Management and Insurance Research at the University of Illinois School Gies College of Business, points out that the uncertainty surrounding a situation often leads to an inclination to charge higher prices. This is because when you are unsure about what exactly you are covering, there is a natural tendency to want to protect yourself and your business.

Auto insurance premiums have seen a significant increase of 26% nationwide this year. However, the state of Illinois is experiencing an even faster rise, with premiums soaring by 28% across the state.

According to McChristian, the increasing cost of repairs leads to an increase in insurance costs.

According to McChristian, the cost of auto insurance is being influenced by several factors, including a 40% increase in motor vehicle parts prices, a 21% increase in repair costs, and a significant rise in used car values over the past five years.

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Giannoulias expressed his support for Jones’ bill, stating that it aims to tackle the issue of companies utilizing consumer data and algorithms obtained from external sources. He clarified that his endorsement is not primarily driven by the goal of addressing high auto insurance rates.

According to Giannoulias, the main objective of this bill and his testimony is to ensure that rates are determined based on individuals’ driving records.

Gov. J.B. Pritzker revealed his plans to introduce legislation to extend rate review to large group health insurance plans during his budget address last week. It is worth noting that Illinois is one of only two states, the other being Wyoming, that currently lacks a rate review policy for auto insurance.

During Monday’s hearing, there was a discussion about House Bill 4767 introduced by Guzzardi. This bill aims to implement rate review for auto insurance in Illinois.

“Rate review plays a crucial role in curbing excessive and unfair rate increases,” emphasized Abe Scarr, who serves as the director of Illinois PIRG and the PIRG Energy and Utilities Program.

Scarr responded to Keicher by stating that the implementation of a rate review through the Illinois Department of Insurance would not burden taxpayers. Instead, a nominal fee would be imposed on auto insurance policy writers.

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