Moments of crisis are clarifying. In the first months of the pandemic, most of us, understanding we were all in this together, did our part — sheltering in place and following other public health recommendations. But some companies, including car insurers, took the opportunity to profit at others’ expense.
When so many of us stopped commuting during the first year of the pandemic, the risks of driving plummeted; fewer cars on the road and fewer miles driven meant fewer car crashes and fewer insurance claims filed. But car insurance rates did not go down in proportion.
New data collected and published by the Illinois Department of Insurance tell the story: the top four car insurance companies by Illinois market share — State Farm, Geico, Progressive and Allstate — made roughly $500 million more in 2020 than they would have needed to maintain 2019 profit levels. Their income from premiums stayed relatively steady, but costs were way, way down.
Responding to public pressure, the companies collectively returned around $220 million to customers in 2020. But those four companies alone still raked in a $280 million pandemic windfall. An earlier analysis by the Consumer Federation of America, which reviewed all Illinois car insurance companies, estimated the insurers’ total post-refund Illinois windfall at $896 million, or $99 per policy holder on average.
While reaping exorbitant pandemic profits, Illinois’ major insurance companies rewarded top executives with generous bonuses. For example, Bloomington-based State Farm dramatically raised CEO Michael Tipsord’s annual bonuses from $8.3 million in 2019 to $18.1 million in 2020 and $22.4 million in 2021. Business was good.
Now, as consumers struggle with high energy prices and the sharpest inflation in decades, insurance companies are moving swiftly to impose double-digit rate hikes. Allstate has already done that, costing the average customer more than $200 per year, while promising to raise rates even further this year. State Farm has already imposed back-to-back increases just months apart.
While the insurers’ actions are disappointing, what’s more disappointing is that consumers in Illinois have no recourse. That’s because Illinois has among the weakest insurance consumer protection laws in the country.
Like all states except New Hampshire, Illinois requires every car owner to buy car insurance. But most states — all but two — give the government the power to reject or modify car insurance rate hikes. Those two states? Wyoming … and Illinois. Illinois law doesn’t even prohibit “excessive” rates, nor does it place limits on unfairly basing rates on things that have nothing to do with safe driving, such as credit scores and ZIP codes.
In states with stronger protections, consumers fared better through the pandemic. California regulators, for example, ordered insurance companies to “close the gap” after initial pandemic rebates fell short — something Illinois regulators are not empowered to do. In 2021, State Farm announced that it was sending its California customers an additional $400 million in pandemic refunds “due to better than anticipated claims results.”
Illinois residents deserve no less. It’s time for Illinois to catch up to the rest of the country by enacting basic car insurance consumer protections. That won’t be easy: For years, Illinois-based insurance giants State Farm and Allstate have used their power in Springfield to bat away legislative attempts to implement consumer protections.
But given the rising costs of gas, food and utility bills, state legislators are looking for ways to help their constituents. One way to do that would be to give the Department of Insurance tools to protect car insurance customers — like the power to reject or modify rate hikes and end the unfair practice of using non-driving factors to set rates.
Insurance is about sharing risk as broadly as possible; just like responding to the pandemic, we are all in this together. Our experience over the past two years makes clear that Illinois can and should do more to ensure insurance companies treat consumers fairly.
Abe Scarr is the director of Illinois Public Interest Research Group (PIRG).
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