Runaway Insurance Costs Bring Back Talk of Price Caps

Rate caps have moved to the forefront. The Wall Street Journal reports Runaway Insurance Costs Bring Back Talk of Price Caps

Illinois lawmakers are considering a ban on home insurers hiking rates because of catastrophes in other states. Louisiana recently handed its regulator the power to strike down "excessive" premiums.

New York lawmakers are investigating soaring home-insurance costs, with a view to potential new curbs. In Michigan, Democratic lawmakers this summer proposed a law to impose a 10% cut in auto-insurance rates.

"Rate increases are top of mind for every policymaker across the country. Consumers are going to them and saying, 'I can't deal with a 30% rate increase, or a 40% rate increase'," said Jon Godfread, president of the National Association of Insurance Commissioners.

"The increases are so big—you just think 'wow, what's going on'," said Jarrad McCarthy, a Chicago sales executive. In the past two years, the annual cost of insuring his three-bedroom home has increased 47%, from $1,312 to $1,929.

Coverage for his Hyundai Tucson has gone up even more: The six-month premium jumped 62%, from $584 in June 2023 to $946 this summer.

Some lawmakers see rate controls as the answer. Illinois Democratic Gov. JB Pritzker backed the state gaining a veto over price increases this summer, after lashing out at an "unfair and arbitrary" 27% hike in home-insurance rates by State Farm.

California for decades had an effective 6.9% ceiling on premium increases. That kept its home-insurance rates below the national average, despite pricey real estate and vulnerability to wildfires.

But a pullback by major home insurers has plunged the market into crisis. To try to woo them back, regulators in recent months greenlighted double-digit home-insurance rate increases far in excess of the historic norm.

"I may be criticized and dragged through the mud for it…but I don't care," Insurance Commissioner Ricardo Lara said, after backing a 17% increase for State Farm. "We can't just talk about affordability without first addressing availability. You can't afford what doesn't exist."