INSURANCE COST CONTAINMENT REPORT SHOWS OPEN COMPETITION WORKS

Springfield, IL - The Illinois Department of Insurance's latest analysis of property and casualty insurance underscores the success of the state's competitive marketplace. Released April 15, the Annual Report on Insurance Cost Containment describes a viable, flexible and cost effective market that provides Illinois insurance consumers with wide product choice at competitive prices.

"Insurance regulators have a tri-fold responsibility to the insurance buying public," Insurance Director Nat Shapo said. "We must ensure that insurance coverage is available, reasonably priced, and sold by reliable companies. The Cost Containment Report shows that open competition achieves those goals.

"I take my responsibility as a regulator very seriously, and I am not a free market ideologue," Shapo said. "The Ryan administration supports the Illinois system because it produces tangible results for the consumer as demonstrated by this report."

Mandated by the Illinois Insurance Cost Containment Act (Article XLII, 215 ILCS 5/1202-d), the report analyzes auto, homeowners, commercial auto liability, medical malpractice and other liability coverages in terms of availability, profitability and reliability. Among the report's significant findings are:

Availability:

• With the exception of medical malpractice insurance, Illinois property and casualty lines scored well on the Herfindahl/Hirschmann Index (HHI), an instrument that measures the degree of competitiveness in any given market. A level of 1800 or higher generally indicates that a market is
• becoming too concentrated. HHIs for Illinois lines in 1997 were: 1235 for homeowners; 1250 for private passenger auto; 135 for commercial auto liability; and 428 for other liability. Medical malpractice scored 2954, largely because 49.8 percent of the market is insured by a physician- affiliated exchange -- a practice that is common in many states. Further, the overall downward trend for medical malpractice shows improvement.
• Insurance written in the Illinois residual market is minimal, showing that coverage is readily available through the voluntary market. In 1997, both the FAIR Plan and the Auto Plan accounted for less than one percent of the homeowners and auto insurance markets respectively, while only 4.3 percent of workers compensation insurance was written by the Assigned Risk Pool.
• Profitability:
• Illinois property/casualty insurers have not realized excessive profits. Losses as a percent of earned premiums have generally been higher for Illinois property/casualty insurers than for the country as a whole.
• For example, for every premium dollar earned in Illinois in 1996, private passenger auto insurers paid 68.5 cents in claims compared to 66.7 cents nationwide; while homeowners insurers paid 93.1 cents in claims compared to 78.6 cents nationwide.
• Reliability:
• For 1997, Illinois licensed p/c insurers reported a 22.7 percent increase in policyholders' surplus and a net underwriting loss of $5 million, considerably less than the $14.4 million loss reported in 1996.
• Investment income relative to earned premiums for Illinois licensed p/c insurers has risen steadily since 1994.
  • "Illinois differs from most states in that for almost thirty years insurance prices have been driven by the market rather than by rate regulation," Shapo said. "Governor Ryan is committed to maintaining this system, and I would encourage the National Association of Insurance Commissioners and other states to use Illinois as an open competition model. Illinois' experience shows that consumers and companies alike benefit from an open competition regulatory environment."
  • Copies of the Cost Containment Report may be obtained by calling (217) 785-2228.