CHICAGO (WLS) — There’s a new effort to address disparities in how car insurance rates are determined and prevent insurance companies from using socio-economic data like credit scores, zip codes, and age to charge higher rates.
It’s all a part of the secretary of state’s new advocacy campaign called “Driving Change.”
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The new campaign launched Wednesday with the support of AARP Illinois and some state lawmakers.
Their goal is to stop what supporters call unfair and discriminatory rate-making practices.
They say insurance companies often use factors to come up with rates that have nothing to do with your driving record, like credit scores, address, and age.
“We know that credit scores have absolutely no bearing on an individual’s ability to navigate a car,” said state Rep. Rita Mayfield, a Democrat from Waukegan.
State law requires every vehicle owner to have auto insurance.
Supporters say, although older drivers in Illinois are the safest drivers, their car insurance rates don’t reflect that.
Advocates of the new effort say reforms will create equality and transparency for auto insurance premiums.
And this will have a positive impact on the number of un-insured drivers by making car insurance more affordable.
“So if the purpose of auto insurance is to protect the 8.5 million Illinois motorists, it only makes sense that their driving records serve as the primary record for setting their rates,” Illinois Secretary of State Alexi Giannoulias said.
He wants the auto insurance industry to be more transparent about how they determine rates.
Giannoulias said Illinois is one of just two states where the auto insurance industry does not have to seek prior approval before raising rates.
“Safe drivers in Illinois are paying the price for a system that is rigged against them. Currently, insurance companies use a number of factors to determine your premium, including several that have nothing to do with your driving record,” Giannoulias said. “Policies based on credit rating and zip code disproportionately impact people with lower incomes and people of color. In fact, an Illinois driver with good credit and a DUI will get a lower premium than a driver with poor credit and no DUI.”
The secretary of state’s office shared the story of one 20-year-old Chicagoan who complained to the office about the disparity of monthly rates he was quoted first using his South Side Chicago address and then changing it to Naperville.
“There it was 300 bucks. Where I live, it was $1,000, and it was just ridiculous,” Zion Minge said. “My driver’s record is clean. I have no accidents, no issues whatsoever. Yet, I have to pay more just because of where I live.”
The insurance industry countered in a statement, saying, “The purpose of underwriting tools like credit, zip code and age are not discriminatory, rather, they are statistically validated indicators of insurance risk. Of course, transparency and equity must be priorities – but so should preserving an actuarially sound pricing system that rewards responsibility, not punishes it.”
And the industry claims if the criteria are changed, rates will go up across the state.
The new campaign comes as State Farm announced earlier this month that it would raise homeowners insurance rates by more than 27%, prompting Illinois Gov. JB Pritzker to call on the legislature to find a solution.
The Illinois secretary of state is also launching a new website so people can learn more about the auto insurance issue and share their stories.
A series of town halls are also planned around the state in the next few weeks.
Giannoulias’ two-month pressure campaign kicks off with a town hall on the South Side Aug. 20.
State Farm issued a statement saying, “State Farm recently announced auto insurance rates in Illinois will decrease an average of 5.7%, with some customers seeing reductions in premiums of up to 15%. This decision was driven by trends projecting lower claims costs.
“To better understand the factors used by the auto insurance industry in rate making and underwriting we recommend you contact trade organizations like NAMIC, APCIA, III, and IIA.”
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