Takeaways:
- State Farm Illinois 27% home insurance rate increase took effect in July
- Insurer's statements and regulatory filings claim catastrophe losses without underlying data
- Illinois legislature's bill to give regulator oversight fails
Exhibit 1J in the filing states that the insurer incurs $2.3221 in losses for every $1,000 in home insurance to cover catastrophes. This exhibit also gives a figure of .2761 for "projected amount of insurance years per earned premium," which when converted to premium, amounts to $3.6218 per $1,000 of home insured.
The ratio of $2.3221 to $3.6218 equals 64.1%. That ratio of 64.1% appears in Exhibit 1A in the filing as "projected provisional loss and LAE," which is one of five expense figures State Farm states it incurs. The other four are: projected non-provisional credibility weighted loss and LAE (loss adjustment expenses), 35.7%; fixed expenses, 6.9%; variable expenses, 12.7%; and profit and contingencies, 7.5%. These total 126.9% – which means State Farm states it is losing 19 cents on every dollar in premiums collected in the market.
Exhibit 1L in the filing states that the $2.3221 figure representing the impact of catastrophic events on losses (or claims payments) comes from catastrophe losses and LAE that are "analyzed separately" from other losses. However, the entire 32-page filing does not have any enumeration of catastrophe losses that produce the $2.3221 figure of the impact of catastrophes on every $1,000 in home insurance.
The introductory text of State Farm's filing states, "Over the last several years, our catastrophe provision has proven to be inadequate when compared to our actual catastrophe loss experience. While there is volatility associated with extreme weather events, our Illinois catastrophe losses have exceeded the year's catastrophe provision in 13 of the last 15 years, signaling the provision used in rating has been insufficient in recent history. We have adjusted our provision methodology to better represent expected catastrophe losses moving forward."
In Illinois, other recent rate increases by major home insurers include a 14% increase by Allstate in February, and a total of 25.4% in increases by Farmers Insurance since December 2021.
The Illinois Department of Insurance does not have the power to reject rate increases, as regulators do in many other U.S. states.
"This bill would have been a small but important step forward for Illinois homeowners insurance customers," stated Abe Scarr, program director for energy and utilities at the Illinois Public Interest Research Group (PIRG), in a press release. "It would finally make it illegal to charge excessive or unduly discriminatory homeowners insurance rates in Illinois. But it fell short of the reforms we believe Illinoisans deserve and should expect. The fact that this incremental reform failed in the House is a testament to the ongoing influence of the insurance industry in Illinois."
Digital Insurance found that the state's insurance industry organization, the Illinois Insurance Association,
In recent months, other state regulators have acted to limit or deny rate increases:
- Washington State's Office of the Insurance Commissioner recently added a
new rule requiring auto and home insurers to explain reasons for any increase greater than 10% , starting June 1, 2027. - In September, the Colorado Division of Insurance proposed a rule
requiring insurers to consider wildfire mitigation efforts when setting rates. - In July, the Pennsylvania Insurance Department
denied $210 million in requested property & casualty insurance rate increases.
