Law loosens Illinois mandate for farm mutual insurance companies

Farm mutual insurance companies offer insurance coverage to farmers and other property owners in rural areas. There are 44 farm mutual companies with more than 50,000 policyholders in Illinois.

The new legislation, which lawmakers passed with no opposition during the fall session, requires that farm mutual insurance companies maintain reinsurance that is "adequate" rather than "unlimited."

In simple terms, reinsurance is insurance for insurance companies. It allows insurers to transfer some or all of the risk of the policies they underwrite onto another company.

Before, Illinois law required that catastrophic reinsurance policies have no caps on claims made. With extreme weather events becoming more frequent and insurance claims subsequently rising, many in the reinsurance market are no longer willing to accept that amount of risk.

Four companies were offering reinsurance contracts to Illinois farm mutual insurance companies as of Jan. 1, but only one was expected to continue to offer the terms that would meet the requirement for catastrophic coverage, according to the Illinois Association of Mutual Insurance Companies.

The legislative fix averts a potential domino effect. Farm mutual insurance companies that were unable to secure reinsurance coverage would likely stop offering policies or significantly raise premiums for customers.

"We know that it will probably limit the types of policies and the amount of coverage that can be done, but it does it in a way that still allows those policies to be offered by farm mutual companies," said Kevin Semlow, director of state legislation for the Illinois Farm Bureau.

The state farm bureau was neutral on the legislation, as was the Illinois Department of Insurance.

The law took effect immediately. It contains a five-year sunset provision, meaning that lawmakers will eventually have to revisit the changes.

Lawmakers praised the legislation.

"With this adequate reinsurance back in place, farm mutuals can continue doing what they do best: delivering exceptional coverage for exceptional value to their 51,000 policyholders who are currently at risk of losing their insurance January 1," said state Rep. Jeff Keicher, R-Sycamore, in a statement. "These farmers rely on the comprehensive suite of coverages provided for by farm mutuals and are in dire need of this support, so I'm glad we're taking action."