California Says Insurers Must Pass Tax Savings on to Policyholders

Insurance Journal

Insurance companies writing in California were sent a notice by the California Department of Insurance reminding them that under Proposition 103 their rates must not be excessive, inadequate, or unfairly discriminatory.

The recent revision to the Federal Tax Schedule for 2018 reduced the corporate tax rate from 35 percent to 21 percent.

As a result some insurers, whose rates were based on the 35 percent corporate tax rate, may now be charging excessive rates, according to the CDI.

In California the prior approval process that applies to property and casualty insurance rates limits insurer profits and rates. The notice reminds insurers they are obligated to file a rate change application with the department to ensure they are complying with Proposition 103.“I am working to make sure insurance companies are not taking advantage of their policyholders,” Insurance Commissioner Dave Jones said in a statement. “In California insurer profits are limited under Proposition 103, therefore the savings they realize from the tax reductions should result in those savings being passed on to policyholders through lower premiums.”

In January, Jones directed the department to commence a regulatory review of insurers’ rates due to the federal corporate tax rate cuts. The commissioner also modified the Prior-Approval Rate Making Regulations to reflect the change in tax savings from the corporate tax rate cuts.

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