California Insurer Profit Limits Draw Questions as Consumer Group Seeks Public Review

The central question in California’s insurance rate debate is whether the state should raise the profit allowance insurers can include in approved rates—and what evidence would justify doing so. Consumer Watchdog has urged Insurance Commissioner Ricardo Lara’s department to put any proposed changes through a public process, saying it has not explained why the existing limits need to rise.

The group’s letter to Lara focuses on the minimum and maximum “rate of return” set in California Department of Insurance rules for approved rates. Those limits were adopted in 2007 after nearly two years of workshops, hearings and public comment, the letter says. Consumer Watchdog argues that changing them could affect what insurers are permitted to charge for auto, home and other property and casualty coverage.

What Consumer Watchdog wants

The group is asking Lara to propose changes to the return limits, or other parts of the rate setting rules, through public notice and a full process under the Administrative Procedure Act. In the letter, it describes that as including a published proposal, comments from interested parties and review by the Office of Administrative Law.

That request puts the process at the center of the dispute. Consumer Watchdog says an informal discussion is not enough when the possible change could alter how insurers’ allowable returns are calculated. Its position is that consumers and insurers should be able to examine the proposed text and the supporting evidence before a decision is made.

Senior Staff Attorney Pamela Pressley says there is no urgent need to increase the permitted returns. If the department believes the rules should change, she argues, it should explain its reasoning and invite responses. Consumer Watchdog also says that even if the department believes an exemption could apply, it sees no practical benefit in avoiding public scrutiny and review.

The group’s account of the letter repeats the concern that an expedited change could benefit insurers at consumers’ expense. It also argues that allowing higher returns could add pressure to insurance costs and worsen availability problems that still affect parts of the market. The source does not quantify how much rates might change or identify which customers would be most affected.

How the discussion began

Consumer Watchdog says the department contacted it in August to discuss possible changes to a separate rule concerning insurers’ projected investment yield. Later discussion questions also raised whether the minimum and maximum return limits should change, the group says.

Consumer representatives asked department staff for the factual basis for revisiting those limits. According to the letter, staff said they were investigating the issue and listening, but did not provide evidence or clearly identify the problem a change was meant to solve. Consumer Watchdog and the Consumer Federation of California Education Foundation, the two consumer groups on an August 25 call, said they could not give a meaningful response without more detail.

The department reportedly raised a concern that a negative minimum return might not be high enough to prevent inadequate rates. Consumer Watchdog says no supporting evidence was provided and that the department did not explain a specific need to amend either limit. That leaves an important question unanswered: what market conditions, calculation or consumer outcome would the proposed change address?

Profit figures cited in the letter

To support its argument that there is no demonstrated need to raise the limits, Consumer Watchdog points to industry earnings. The letter cites a September report from Verisk and the American Property Casualty Insurance Association, which put nationwide property and casualty insurers’ net underwriting income at $31.7 billion for the first half of 2026. The letter defines that figure as money remaining after claims and overhead, before investment income is counted.

It also cites Allstate’s second-quarter results. The letter says the company’s net income reached $3.2 billion, up 56% from a year earlier. It reports an adjusted net income return on equity of 44.2% over the previous 12 months, while Allstate’s property-liability underwriting income rose nearly 57% to $2 billion. Policies in force increased 3.8% to 215.9 million, according to the figures cited.

For 2025, Consumer Watchdog points to an analysis of the National Association of Insurance Commissioners’ annual report by Public Citizen and Revolving Door Project. That analysis described the year as strong for property insurers nationwide, with $68.7 billion in underwriting income and more than $111 billion in investment income.

Those figures provide context for the group’s objection, but they do not by themselves establish how California’s existing return limits should be set. The figures cover broad industry results or a named insurer; the source does not connect them to a proposed new limit or estimate the effect on individual policy rates.

What to watch next

The next substantive step would be a clear explanation from the department of whether it intends to change the return limits, what problem it wants to address and what data supports that position. If a proposal is published, its details would allow consumers, insurers and other interested parties to assess how the calculation might affect rates and availability.

For drivers and homeowners, the practical issue is whether a change to insurers’ permitted returns would flow into approved prices, and on what timetable. That outcome cannot be determined from the information in the letter. For now, the dispute is about the evidence and process behind a possible change; the actual limits, any proposed replacement and its effect on premiums remain unspecified.

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