What Illinois Must Do to Avoid an Insurability Crisis
As risks of disasters rise, so do insurance prices.
An apartment complex damaged by a fast-moving storm—a combination of a tornado, straight-line winds in excess of 70 mph, and a microburst—that hit Springfield, Illinois
Illinois lawmakers failed to pass a bill that would have given the state authority to regulate insurance rate increases by insurance companies, despite Governor JB Pritzker’s call for increased state oversight of insurance rates. But the issue of skyrocketing insurance prices will not go away—because the risks are also increasing.
It’s simple: If Illinois’s homes and businesses are not built to withstand future storms, then those homes will not be insurable in the future.
The frequency and severity of disasters are increasing, as are the resulting damages. This means more insurance claims and higher insurance prices. While regulating insurance rates is important for consumer protection, it is not sufficient to address the long-term drivers of rate increases: rising disaster damages.
Without concerted efforts to reduce the potential for damage to homes and businesses, the state could find itself in an insurability crisis—when the potential for widespread damage from natural hazards or disasters exceeds insurers’ tolerance for those risks and the financial losses they represent. As a result, insurance becomes increasingly unaffordable and unavailable, and private insurers begin to retreat or abandon parts of the market. As we have seen in other states, many insurers will abandon a state’s market entirely.
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One early sign of an insurability crisis is spiking premiums. Between 2021 and 2024, homeowners’ insurance prices rose 50 percent on average across Illinois, according to the Consumer Federation of America. State Farm announced in July that it will increase premiums by an average of 27 percent statewide. Underlying these premium increases are mounting losses and damages from natural hazards.
Consecutive years of major storms, tornadoes, and hailstorms; one or more catastrophic tornados (like the one that caused more than $1.6 billion in damage in St. Louis this past May); or a derecho windstorm (like the one that caused more than $11 billion of damage in the Midwest in 2020) could tip Illinois insurance markets into a crisis, similar to California, Florida, and Louisiana.
While Illinois does not experience hurricanes and wildfires, wind and hail are among the leading causes of disaster damages for insurance companies in Illinois and nationally (far surpassing wildfire losses). For Allstate, which is also headquartered in Illinois like State Farm, wind and hail comprised 71 percent of the $27.3 billion in disaster losses they paid out between 2012 and 2024, according to information filed with the Securities and Exchange Commission. For its part, State Farm cited hail damage as a driver of its rate increases.
Earlier this year, the governor, speaker, and senate president all called on members of the general assembly to pass legislation that would require insurers to get approval of the Illinois Department of Insurance for proposed rate increases. And when the general assembly reconvenes in 2026, it must also consider how the state will address the mounting risks from climate-influenced disasters and storms that are driving the price of insurance higher, each and every year.
NRDC urges the state to proceed with three actions.
Require disclosure of climate-related data and catastrophe models
As part of any legislation to regulate and oversee insurance rates, Illinois should require disclosure of climate-related data and catastrophe models in connection with an insurance company’s rate applications. Insurers use sophisticated tools and sources of data that the Department of Insurance must understand if it is to assess whether a proposed rate increase meets the criteria for approval that Illinois may ultimately adopt in statute. In addition, this information could be useful to the state to better inform the public about future risks that affect insurance rates and premiums. It could also help the state prioritize hazard mitigation funding, find ways to strengthen building codes, incentivize “beyond code” home improvements, and implement climate-informed decisions about state infrastructure and housing investments.
Insurers should be required to submit catastrophe model data and climate-related data and explain how they have factored risk reduction efforts into their rate setting, as part of any rate increase application reviewed by the Department of Insurance or as part of other regular annual or semiannual reporting requirements to the state. This should include reporting from the residual market as well.
These requirements should include provisions like the ones enacted in Colorado.
- Considers hazard mitigation efforts: Insurers using catastrophe risk models are required to take into account mitigation work done by homeowners and communities.
- Mandates transparency: Insurers are required to share information about the risk models and scoring methods they use with the commissioner of insurance.
- Provides appeal options: Policyholders can appeal inaccurate risk scores or classifications, with insurers required to respond to these appeals within 30 days.
Capitalize a state resilience fund via fees from licensing of insurers, agents, and brokers (privilege tax)
Risk reduction efforts will benefit consumers and insurers by decreasing the long-term potential for damages and the resulting financial losses. However, individual insurers are reluctant to invest their own capital in policyholders’ risk reduction efforts. Instead, the state should collect funds from insurers and pool those resources to support risk reduction efforts across the state. These efforts should include resilient affordable housing and retrofits, adoption and enforcement of hazard-resistant building codes, and much more.
Illinois should also look at what states like Alabama and North Carolina are doing, such as providing grants and other financial incentives to homeowners who build homes with stronger, better-engineered roofs that can hold up to high winds, like those that accompany convective storms and tornadoes and cause severe damage in Illinois.
Prepare a state FAIR plan for future increases in enrollment
Fair Access to Insurance Requirements (FAIR) plans are state-mandated insurers of last resort that provide coverage to properties deemed uninsurable by private insurance companies. Other states’ experiences show that FAIR plans become a growing concern once an insurability crisis is set in motion. NRDC has published recommendations for how states can prepare their FAIR plans to be part of a state’s climate resilience solution rather than becoming a major liability.
READ NRDC'S FAIR PLAN REPORT
Illinois’s FAIR plan is very small today—approximately 2,200 policies in 2024, according to the Property Insurance Plans Service Office (PIPSO)—but it will not stay that way. Many states’ plans have seen enrollment spike in alarming ways in recent years, largely driven by natural catastrophes and mounting losses to private insurers. According to data from PIPSO, Florida’s and California’s insurers of last resort more than doubled in size between 2021 and 2024, while Louisiana’s nearly quadrupled.
Many states have prioritized risk reduction efforts for FAIR plan policyholders, recognizing that these policyholders have been deemed uninsurable by the private market due to high risks. As such, FAIR plan policyholders are a logical target for future risk reduction resources and programs. Illinois should begin to put such assistance in place now to stay ahead of an insurability crisis that could develop in future years. In addition, the state should consider in advance how it can help lower-income homeowners afford FAIR plan coverage and couple that with risk reduction assistance.
As insurance prices continue to go up rapidly in Illinois, the governor and members of the general assembly should put in place some form of insurance rate regulation. But regulation of prices is not going to head off those price increases if the risks continue to escalate.
If Illinois truly wants to address the long-term affordability and availability of insurance, then it must begin to actively work to reduce the risks that homeowners increasingly face from increasingly violent storms, severe weather, and other climate-influenced disasters.
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