Insurer Practices/Profits

Insurance Customers Will Be Overcharged by $25 Billion Unless Commissioners Order Rate Cuts in Response to New Tax Law

Drop in Corporate Tax Rate Gives Insurance Companies Major Windfall on Backs of Policyholders; California Insurance Commissioner Announces Action

Washington, DC – Each state insurance commissioner should act quickly to ensure insurance consumers – and not shareholders – benefit from the recent changes to the federal tax code and major reduction in the corporate tax rate, according to insurance consumer advocates Consumer Federation of America (CFA) and Center for Economic Justice (CEJ).

Most insurance, including auto, homeowners and business insurance, is regulated by the states. In a letter sent Tuesday to each state insurance commissioner, CFA and CEJ identified the increased profits flowing to insurance companies from lower taxes. The groups explained that, absent action by state insurance regulators to force insurers to lower rates, the tax-related profit windfall of $25 billion or more would not benefit insurance consumers. A copy of the letter is available here.

“When insurance companies develop their rates, the amount of premium they need to earn is increased by the amount of tax they pay on profits and investment income,” explained J. Robert Hunter, CFA’s Director of Insurance and former Texas Insurance Commissioner. “When their taxes go down, they need less premium, so their rates must come down. But unless commissioners ensure that companies lower their rates, drivers, homeowners, and businesses will be stuck overpaying for coverage.”

On Monday, the California Insurance Commissioner directed his staff “to commence a regulatory review of these insurers’ rates given the major tax windfall under the new federal tax rules” – consistent with the request made by CFA and CEJ to all state insurance commissioners.

In the letter, CFA and CEJ asked the regulators to answer three questions:

  1. What is your evaluation of the recent changes in tax laws on insurer profitability by line and what is the basis for your conclusions?
  2. What actions are you taking in the next month to cause insurers to reduce rates to reflect the windfall from tax changes and to ensure rates return to not excessive levels?
  3. Will you support an effort by the NAIC to revisit the changes made to accounting for deferred tax assets from a few years ago?

Contact: J. Robert Hunter, 207-864-3953; Birny Birnbaum, 512-784-7663


The Consumer Federation of America is a national organization of more than 250 nonprofit consumer groups that was founded in 1968 to advance the consumer interest through research, advocacy, and education.

The Center for Economic Justice is a non-profit organization that works to increase the availability, affordability and accessibility of insurance, credit, utilities, and other economic goods and services for low income and minority consumers.