Would Illinois's New Insurance Law Help or Hurt Your Wallet?
Illinois is on the verge of passing new consumer protection laws, but the insurance industry says it's bad news.
Senate Bill 1486 is currently awaiting a vote in the Illinois Senate, and it's already being met with a mix of enthusiasm and disdain. Illinois Secretary of State Alexi Giannoulias has championed it as a set of strong consumer protections for Illinois drivers. But some in the insurance industry are saying the new regulations will lead to rate hikes or more policy cancellations.
With such mixed messaging coming out about this bill, Illinois residents might be concerned and confused about what the new law would mean for their budget.
If passed, it could have a real impact on both your home and car insurance premiums, so it's important to dig into the weeds and see what it's about.
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What would Senate Bill 1486 do?
The sweeping consumer protection bill includes a lot of new regulations aimed at targeting everything from junk fees to fraud to unfair insurance rates. Here's a look at just the pieces of the bill that would impact what you pay for home and auto coverage:
- Insurance companies would have to provide you with 60 days notice if they plan to raise your home or car insurance rates by more than 10% at your next renewal.
- An insurance company wouldn't be allowed to shift costs related to out-of-state risks onto Illinois policyholders. For example, an insurance company doing business in multiple states can't charge Illinois homeowners more to offset the higher cost of claims they're paying out after a natural disaster in, say, California or Florida.
- Illinois's existing laws about excessive or unfair rate-setting practices would now apply to car insurance (as well as home insurance).
- The state's Department of Insurance would now have a more clear process for enforcing those existing laws.
- The bill will also cut the class time required for seniors (55-plus) taking a defensive driving course for a premium discount. If passed, you'd qualify for the discount after just four hours instead of eight hours.
If passed, these new regulations would go into effect in Illinois on July 1, 2027.
The reasoning behind Senate Bill 1486
The proposed policy changes are the result of concerns raised during Giannoulias's Driving Change campaign, which highlighted "how insurers use socio-economic data including credit scores, ZIP codes and age to set rates in ways that disproportionately impact seniors, working families and communities of color."
According to the Driving Change campaign page, full coverage car insurance rates shot up 18% on average in Illinois from 2023 to 2024.
In an independent study commissioned from O'Neil Risk Consulting & Algorithmic Auditing (ORCAA) and released by the secretary in April, car insurance rates across the state appeared to be tied, in part, to factors that aren't directly related to the actual risk of insuring the driver.
Poor credit, for example, can result in premiums that are almost triple what a driver with excellent credit would pay for the same coverage, despite credit scores not being directly related to a person's ability to drive safely.
This can be especially hard on seniors who face higher car insurance rates due to their age. For those on a fixed retirement income, it can be difficult for their budgets to absorb 10% or more rate hikes every year — especially if their driving record remains clean and all that's changing is their age.
In one public comment published on the Driving Change campaign page, an Illinois driver notes that her car insurance jumped from $75 per month to $212 per month the year she turned 65, despite a perfect driving record.
Is Senate Bill 1486 good news or bad news for Illinois policyholders?
In a policy brief on the Illinois bill, the Insurance Information Institute said, "The measure would add new regulatory layers that could impede the accurate pricing of risk while doing nothing to address the underlying causes of rising premiums."
The III argues that the new restrictions on how companies set rates "could erode the policyholder surplus insurers are required to keep on hand to pay claims" If that happens, insurers might choose to either raise rates to replenish the surplus or pull out of riskier states.
The institute also notes that, when factoring in median household income, insurance rates in Illinois are already more affordable than the national average.
However, the new law would not prevent insurers from raising rates in response to increasing risk in Illinois. It's specifically targeting the use of factors that aren't strongly linked to risk when setting rates, and to the cost-shifting practices some companies use to offset higher costs in states that are prone to more expensive natural disasters.
If an insurance company can clearly show that the rates charged reflect, in the words of Senate Bill 1486, "an actuarially sound estimate of the expected value of all future costs" of the individual risk, it should have no problem remaining in compliance with the new law.
Overall, this legislation looks like good news for Illinois homeowners and drivers. It will give those facing steep renewal rates more time to shop around and switch car insurance (or home insurance) if they find a better price, and it will limit the use of less relevant factors (like your credit score) in determining the rates you pay.
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