Lawmakers around the country are looking for ways to lower insurance rates through legislation. States like Illinois have made proposals for reform that are meant to have immediate effects. But knee-jerk reactions can have long-term consequences. A bill introduced in 2025 in the Illinois State Legislature, titled the “Insurance Fairness and Consumer Protection Law,” serves as a warning for other states not to propose similar legislation.
As introduced, the bill requires insurance companies to obtain approval for any rate increase for personal auto and homeowner policies, with a total premium increase cap at 15 percent. It also removes factors used in premium determination that some lawmakers consider discriminatory. In many ways it is eerily similar in nature to California’s shudder-inducing Proposition 103, which is one of the strictest and least effective insurance reforms in the country and has wreaked havoc on consumer affordability and availability.
The first part of this legislation is a rate cap, and rate caps have predictable results: decreased availability. Enacting such a restriction would reverse the state’s present course. Illinois currently stands as “the only state without the authority to review insurance rates.” The state has some of the least restrictive rate processes in the country and less regulation offers freedom of choice to insurers. This bill would reverse course.
According to a National Association of Mutual Insurance Companies (NAMIC) study, states that have a prior approval process “are more likely to constrain Insurers’ rates.” Another study reported that auto carriers facing greater regulatory environments offset those regulations by decreasing insurance quantity and quality. Though the study was published in the 80s, increased regulation with subsequent diminished quantity and quality is still seen throughout the states.
Restrictive markets can often show in a state’s Fair Access to Insurance Requirements (FAIR) plan. These plans exist to provide coverage as a last resort for consumers who cannot obtain coverage through an insurance company because of decreased availability. When the FAIR plan is functioning as a normal option rather than a last resort, it is a signal of decreased insurance availability.
Illinois has a robust FAIR plan and a less regulated rate approval process. The plan’s total value of the number of policies (total written premiums), decreased from 2016 to 2024, going from 0.20 percent to 0.07 percent of market share. This signals that the plan is functioning as a last resort insurance coverage option rather than a market competitor. However, the proposed regulation risks undoing this progress and moving it towards the status of California.
The proposed regulations wouldn’t just serve as a rate cap. The second part of this legislative nightmare is the removal of risk determination factors by limiting homeowner factors to “age, location, and condition.” Further, it seeks to remove credit scores which are cited as being “among the most useful predictor variables available to underwrite and price automobile (and homeowners) insurance.” Studies have shown that higher crash rates are associated with those who have poor credit history. The use of credit scores is widely accepted by the industry.
Removing risk factors like credit scores would further deter insurers who would inevitably have difficulty covering their risk. Illinois law already limits how credit scores are used by not allowing credit scores to be the sole determinant for insurance coverage or pricing.
Removing information from rate calculations doesn’t protect the consumer. Instead, it creates an environment where it is difficult for insurers to operate. In reality, removing determination factors like credit scores will likely cause price increases across the board to account for the lack of data to project future loss.
Despite the intent of proposed legislation, consumers should not be fooled into thinking that price caps and regulations on rate calculations address the issue of insurance costs. Economic realities exist even when applied to the insurance industry. As states continue to grapple with rising insurance costs, other factors contribute to these rises, and ill-conceived reform efforts will only further the insurance crisis. Regulators know what factors contribute to rising rates. They should be pulling other levers at their disposal.
Leah Locke is a policy analyst at the American Consumer Institute, a nonprofit educational and research organization. You can follow her on X @leahmlocke.