The landmark legislation was championed by Illinois Secretary of State Alexi Giannoulias.
The bill's signing comes just days after Giannoulias announced he's running for Chicago mayor.
Governor JB Pritzker signed senate bill 714 into law.
The measure looks to end unregulated rate hikes by granting state regulators authority to review and challenge excessive auto insurance rates.
The bill bans insurance companies from increasing auto premiums by more that 10-percent without first notifying consumers 30 days before their renewal date. It also prohibits out of state cost shifting and establishes the framework for premium discounts for defensive driving classes.
The legislation ends a four-year effort by Giannoulias to modernize Illinois auto insurance laws.
People who support this bill said Illinois no longer joins Wyoming as the only two states lacking oversight authority to ensure economic justice and driver affordability.
"We know, systemically, that this impacts certain communities more than others more than others and so to ensure that we are addressing the fact that Brown and Black have access to affordable auto insurance is incredibly important and will take their access to jobs, to schooling, to doctor' appointments to a whole new level," state Senator Ram Villivalam said.
"These bills today hold insurance companies accountable for addressing their cost increases by requiring rates to reflect Illinois' specific losses and considerations, the law will enable the department require transparency into any inappropriate cost-shifting by insurers," Ann Gillespie, director of the Illinois Department of Insurance, said.
Some insurance industry groups oppose the new law, saying the heavy regulatory oversight could limit consumer coverage choices and drive up overall market costs over time.
The new law goes into effect July 1 of 2027.