News Release
July 23, 2002

Illinois Insurance Rates on the Rise

As consumers are hit with steep premium increases on their personal lines policies, they often look the cause of the problem and the possible solutions. According to an analysis by Robert Hartwig, of the Insurance Information Institute, "In 2002, the average cost of insuring cars is expected to rise by 8.5 percent while the cost of insuring homes is expected to increase by 8 percent. In 2003, the cost of insuring both cars and homes is expected to rise by 9 percent." Recently, Professional Independent Insurance Agents of Illinois (PIIAI) staff reviewed insurance company rate filings for 2001-2002 and found that there were two trends in the market: 1) homeowners rates were rising anywhere from five percent to almost 20 percent, and 2) some companies were making policy changes, such as adding exclusions and limitations, to diminish their exposures.

General factors that affect all premiums include: increased claims/losses, increased expenses, and lowered investment income due to recent trends in the stock market, losses from September 11 and other catastrophes. Increased claims and expenses, paired with losses on investments, have caused many companies to increase rates, or to cut out their least profitable lines of business. And, while loss estimates remain anywhere from $9-30 billion from the September 11 attacks, many insurers felt the impact of the attacks due to the losses their reinsurers suffered. Also, insurers had been experiencing an extended soft market, which must eventually swing back to a hard market. This trend began early in 2001 and the catastrophic losses throughout the year only added to the rate increases that were already inevitable.

Auto Insurance
Rising medical costs contribute to the increase in the price of auto insurance because car accidents often result in injuries which require medical attention. Rising repair costs, due in part to restrictions on the use of aftermarket parts for repairs, are another significant factor.

Litigation and court decisions also have an effect on the cost of insurance. Last fall, the Georgia Supreme Court ruled that insurers must pay for diminished value when a vehicle is involved in an accident. This decision could add an additional 10 to 15 percent to each claim insurers pay, thus driving the cost up even further. Another important factor in auto premium increases is the number of liability cases that result in steep jury awards.

Homeowners Insurance
Factors contributing to homeowners increases include increases in the number and cost of catastrophes, the high cost of home repairs, the recent surge of mold claims and the increase in age of existing homes.

Damage from natural catastrophes such as hail, wind, and flood waters, has been on the rise due to more frequent and severe incidents. Recent hailstorms in Missouri and flooding in other parts of the Midwest have directly affected the price of homeowners insurance. In addition to the increased number and severity of claims, the rising cost of home repair and rebuilding causes the costs associated with paying claims to rise as well.

Mold is also affecting homeowners rates, due to a rise in the number of mold claims and extraordinary jury awards in several high-profile cases. According to Hartwig, mold claims in 2001 in Texas cost insurers more than $850 million compared to a minimal amount a few years earlier. "The number of mold claims in the state increased by 1,300% between the first quarter of 2000 and the fourth quarter of 2001 while insurer payouts through the third quarter of last year increased 1,200%," according to Hartwig's analysis. With such a dramatic increase in claims, it becomes apparent that companies have raised homeowners rates out of necessity.

The rising age of homes throughout the country is also a contributing factor in the rate increases. Because older homes are often more costly to fix, are more susceptible to damage, and often must be replaced rather than repaired after an incident, the large number of older homes in the U.S. has increased the cost of insurance.
Consumers looking to reduce the cost of their insurance premiums should contact their local independent insurance agent for advice, or visit www.chooseindependent.com to locate an agent in their area. The site also contains insurance tips and valuable safety information.

The Professional Independent Insurance Agents of Illinois is an association representing independent insurance agents throughout the state. PIIAI membership is comprised of 1,500 insurance agencies representing 12,000 licensed independent agents engaged in all facets of the insurance industry, including property, casualty, life and health. Its members are businesses that offer customers a choice of policies from a variety of insurance companies. In addition to serving the professional needs of members, PIIAI works for the betterment of the insurance industry through legislative and consumer awareness programs. The PIIAI is headquartered in Springfield, Illinois. Visit PIIAI's consumer website at www.ChooseIndependent.com or agent website at www.piiai.org.

Click here to view a consumer fact sheet on how to reduce the cost of insurance.