Insurance companies stand to gain a $25 billion tax windfall from their customers unless state regulators ensure the savings gets passed on to policyholders, consumer groups said Tuesday.
In a letter sent Tuesday to each state insurance commissioner, the Consumer Federation of America (CFA) and the Center for Economic Justice (CEJ) urged the regulators to act quickly to ensure policyholders, and not shareholders, benefit from President Trump's reduction of the corporate tax rate.
Insurance customers will be overcharged some $25 billion unless insurance commissioners intervene and order rates cuts in response to the new tax law, the groups said.
“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,” said J. Robert Hunter, CFA director of insurance.
When insurers “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,” said Hunter, a former Texas insurance commissioner.
Some states are already moving aggressively to to ensure that the rates insurers are charging businesses and consumers are in line with lower corporate tax rates.
On Monday, California Insurance Commissioner Dave Jones directed staff "to commence a regulatory review of insurers' rates given the major tax windfall under the new federal tax rules"—consistent with the request made by CFA and CEJ.
"Insurers will now realize significant savings from these recent tax reductions," said Jones. "Policyholders should also benefit from the reduced taxes paid by insurance companies."
Since 2011, the California Department of Insurance has reduced the overall amount of requested rate increases by $974 million and approved over $1.3 billion in rate reductions, totaling over $2.3 billion in savings to California consumers and businesses. This total includes about $803 million in rate reductions for personal auto coverage and $455 million in rate reductions for personal homeowners’ coverage, the state agency said in a press release.
California aggressively went after Allstate Insurance Company and negotiated a 12.6 percent reduction in homeowners’ insurance in 2016. The average annual decrease per policyholder was about $230.