by Ed Sneneh, Chicago Auto Insurance Specialist

Auto insurance rates in Illinois
, like most other states, are regulated by the local state government. For that reason,  all car insurance rates charged for insurance coverage of any type must be filed with the Illinois Department of Insurance. Similar regulatory bodies exist in all other sates to deal with their respective auto insurance rates.

State of Illinois insurance regulations covering automobile insurance rates mandate that the filing of rates with the Illinois Department of Insurance show the character and extent of the coverage in consideration. To be valid, rate regulations mandate that changes to the rates may not be made without first being filed and approved.

The State of Illinois laws regarding auto insurance rates were made with the intent of regulating and preserving competition among Illinois auto insurance companies. The automobile insurance rates laws allow for flexibility in the process of rate-making. Changing rates always require justification based on statistical information. This means that if a company takes a decision to increase its car insurance rates, the new rates must be justified by the company based on numbers (the company is losing money in certain market segment, for example.)

There are certain statutes in auto insurance rates regulations. These statutes provide standards to be adhered to by both the auto insurance company and the Department of Insurance authorities that judge the filings for the new (or changes in the) automobile insurance rates. The standards are set by the State of Illinois to protect the two parties involved, the customers and the insurance companies. These standards are based on fairness for all the players in the auto insurance marketplace. The measures include Adequacy, Reasonableness, Fairness, Responsiveness, and Stability.

Adequacy:  Adequacy  of auto insurance rates refers to the standard that all auto insurance rates should generate enough funds for the insurance company to pay for (1) all claims, (2) Administrative and Sales (Commission) Expenses, (3) Taxes, (4) Money for unexpected future losses, and (4) Profit to the owners of the company.  If the auto insurance rates are set too low where companies may not be able to pay the claims then this will endanger the present customers of the company. Considerations are given to the experience of a particular company in one of its specific market segment (for example, experience of company in ZIP code 606xx, or among Male Age 17) or the average experience of all insurance companies is specific market segment.

Reasonableness. Reasonable Auto insurance rates should be a standard, meaning not excessive to cause excessive underwriting profit. is another important genera. When determining if profit is excessive or not, any unusual or extraordinary expenses should not be passed on to the customers in the form of higher rates.

Fairness.  Fair auto insurance rates are hard to define. Whats fair to the company may not be fair to the insurance consumer. The laws statutes require insurance companies t recognize the differences in the hazards and their costs for the different classes of the insured people.

Responsiveness. Responsiveness of auto insurance rates is expected from the rate structures of inssurance companies. The structure of the plan should be able to adapt to the changes in the hazard exposure in timely manner. Using statistical sampling and other trending factors are fundamental elements in the concept of  responsiveness of auto insurance rates.  

Stability.  Responsiveness, or the ability to change in timely manner, should not allow instability in the rating structure of the auto insurance. Stability implies that even though rate structures are responsive, they should also be stable, making little dramatic and  changes, or changes that are minor. Excessive changes in auto insurance rates may not be healthy for insurers because they create distrust among insurance clients.

Auto Insurance Rates Structure should be simple and easy to understand and explain. Customers need to understand how it works too because that will help in rationalizing the behavior of insurance companies and insurance agents.
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