Consumer Watchdog: CDI may be considering raising insurer profit maximum without public input

Consumer Watchdog, a nonprofit public interest group, has written to California Insurance Commissioner Ricardo Lara, raising concerns that the department is considering raising the maximum profit insurance companies can build into auto, home, and other property and casualty coverage without public input.

According to the letter, CDI regulations set a minimum and maximum “rate of return” for every rate the department approves.

And Consumer Watchdog says raised rates mean insurers may charge more.

“The current limits were adopted in 2007 after nearly two years of public workshops, hearings, and comment,” Consumer Watchdog writes. “Insurers are reporting soaring profits, and the department has offered no evidence that these record profits are too low.

“We are particularly concerned that your department may be considering raising both these limits without a transparent and public process. To put it bluntly, any effort to increase these rates of return on an expedited basis as your term in office ends would represent an undeserved gift to the insurers you are charged with regulating and a slap in the face to the consumers you purport to protect. Allowing insurers to charge even higher rates will only exacerbate any availability issues still impacting the market.”

In a Consumer Watchdog press release about the letter, Senior Staff Attorney Pamela Pressley adds, “California insurance companies are reporting soaring profits, and the department has offered no evidence that those profits are too low. Any effort to increase these rates of return on an expedited basis as Commissioner Lara’s term in office ends would represent an undeserved gift to insurers at consumers’ expense.”

In the letter, Consumer Watchdog calls on Lara to propose any changes to the rate-of-return limits or other provisions of the ratemaking regulations by public notice and subject to a full rulemaking under the Administrative Procedure Act. This would mean, “at a minimum, consideration of a published text, public comment by all interested parties, and review by the Office of Administrative Law,” the letter states.

“There is no urgent need to increase insurers’ allowable rates of return,” said Pressley in the article. “If the Department believes these rules should change, it should put its proposal on the table, show the public the evidence, and let consumers and insurers alike weigh in before any decision is made.

“Public participation and compliance with the APA should be the norm — even if the department believes it could invoke the ratemaking exemption, there is no cognizable benefit to avoiding public participation, public scrutiny, and full review by the Office of Administrative Law.”

Consumer Watchdog says the CDI contacted it in August about possible amendments to a separate regulation governing insurers’ projected investment yield.

“But discussion questions later circulated by the department unexpectedly asked whether the minimum and maximum rates of return should also be changed,” the article states.

Consumer Watchdog says consumer representatives asked CDI staff for a specific factual basis for changing the limits, and weren’t provided one.

“The department claimed to be in an investigatory posture and to just be in listening mode,” the letter states. “Consumer Watchdog’s representatives, as well as representatives for the Consumer Federation of California Education Foundation (the two consumer groups on the August 25 call), explained that they could not properly comment on or respond to the discussion questions on rate of return without a more complete understanding of what concern or issues the department was intending to address through any such potential amendments.

“Ultimately, while the department claimed that a negative minimum rate of return may not be high enough to avoid inadequate rates, it provided no evidence to support this concern and otherwise failed to articulate any particular need that warranted potential amendments to the minimum or maximum allowable rates of return.”

The letter cites findings from a September report issued by Verisk and the American Property Casualty Insurance Association (APCIA) trade association that reflected P&C insurer profits in the first half of 2026.

“Net underwriting income — money left over after the company pays all claims and overhead and before investment income is calculated —was $31.7 billion nationwide for the first half of 2026,” the letter states.

It also notes data points from Allstate’s Q2 earnings as an example of “soaring” profits.

“Allstate’s second quarter 2026 net income jumped to $3.2 billion, 56% higher than last year,” the letter states. “The insurer reported an adjusted net income return on equity of 44.2% over the past 12 months, and Allstate’s property-liability underwriting income also soared, increasing nearly 57% to $2 billion. Policies in force grew 3.8% to 215.9 million.”

Consumer Watchdog calls 2025 “a banner year for property insurers nationwide,” with $68.7 billion in underwriting income and more than $111 billion in investment income, according to an analysis of the National Association of Insurance Commissioners (NAIC)’s annual report by Public Citizen and Revolving Door Project.

Images

Featured image: California Insurance Commissioner Ricardo Lara provided by Consumer Watchdog.