Illinois Home Insurance Rate Regulation: New Legislative Proposal Insights
The Illinois Legislature is examining a legislative proposal that could significantly change the regulatory compliance requirements for state regulators overseeing home insurance rate adjustments. This development comes in response to State Farm's recent 27.2% rate hike, which affected approximately 1.49 million Illinois policyholders, drawing attention to the industry's underwriting and claims practices.
Empowering Regulatory Bodies
House Bill 3799 aims to empower the Illinois Department of Insurance to rigorously scrutinize and potentially reject rate filings that are seen as excessive, inadequate, or discriminatorily assigned. Moreover, this bill allows the department to mandate insurers to issue refunds to policyholders under specific conditions, addressing concerns of unfair practices within the insurance carrier framework.
This legislative move follows a significant rate increase last year by State Farm, leading to premiums climbing as high as 39.9% for some clients. This prompted Governor JB Pritzker to call for enhanced regulatory oversight, spotlighting the ongoing challenges in risk management and provider accountability.
New Notification Requirements
Under the proposed legislation, insurers would face stringent requirements to provide a written notice 60 days before implementing any rate increases surpassing 10%, an extension from the current 30-day notification period. Additionally, policies in force for more than 60 days would require a 60-day notice prior to cancellation, while those active for a shorter duration would require a 30-day notice. These changes aim to improve transparency and compliance for payers and policyholders alike.
The profitability challenges within Illinois' homeowners insurance market are notable, positioning the state as the fifth least profitable for homeowners and farmowners insurance. This is backed by industry data from AM Best, spanning from 2012 to 2022, raising concerns about sustainable practices and market dynamics.
Industry Concerns and Potential Market Impact
The Illinois Insurance Association has voiced concerns that the proposed legislation could destabilize the market by reducing competition and elevating premiums. Kevin Martin, the executive director of the association, warned in an op-ed that the bill might push Illinois towards a prior-approval rate system similar to California's, which historically resulted in increased premiums and reduced market competition.
Martin emphasized that the bill introduces a hybrid rate review process, blending file-and-use with prior-approval methods, which remains unproven and could deter insurers from operating in Illinois. He also noted the lack of defined standards for what constitutes a 'complete filing,' potentially causing indefinite delays in rate requests and subsequent rate inadequacy. The provision for retroactive refunds could further contribute to market unpredictability and instability.
In response to these issues, the association has proposed alternative strategies, such as reinstating measures to curb excessive, inadequate, or discriminatory rates, prohibiting cost-shifting between states, and requiring advanced notifications for rate increases over 10% concerning noncontract factors. A previous version of this legislative proposal was rejected by the Illinois House of Representatives in 2025 due to substantial opposition from the insurance sector.