California Insurer Profit Limits Face Questions as Consumer Watchdog Seeks Public Review

The practical question in California’s insurance rate debate is whether the state should change the profit allowance built into approved premiums—and what evidence would justify doing so. Consumer Watchdog says the California Department of Insurance (CDI) has raised the possibility of changing the minimum and maximum rates of return for insurers without explaining the need or opening the discussion to a full public process.

Those limits apply to rates the department approves for auto, home and other property and casualty coverage. A higher allowable return could give insurers room to seek higher prices, though the effect on any particular policy would depend on the complete rate calculation. For drivers and homeowners already weighing price and availability, the dispute is about both the cost of coverage and how changes to the rules behind those costs are considered.

Why the process matters

In a letter to California Insurance Commissioner Ricardo Lara, Consumer Watchdog says the existing limits were adopted in 2007, after nearly two years of workshops, hearings and public comment. The group argues that changing them deserves a similarly open review, especially because insurers are reporting strong profits.

Consumer Watchdog asks Lara to propose changes to the limits, or to other provisions of the rate setting rules, through public notice and a full process under the Administrative Procedure Act. As described in the letter, that would include publishing proposed text, accepting comments from interested parties and review by the Office of Administrative Law.

Senior Staff Attorney Pamela Pressley says the department should present its proposal and supporting evidence before making a decision. She argues that open participation would let consumers and insurers assess the case for a change. The group also says it sees no urgent need to raise insurers’ allowable returns and questions what would be gained by avoiding public scrutiny and review, even if the department believes an exemption may apply.

That process matters because a profit limit can affect the assumptions used when insurers seek approval for rates. A change could alter those assumptions across more than one kind of property and casualty coverage. But the source material does not describe a proposed new limit, quantify the possible premium effect or say that a change has been adopted. For policyholders, the immediate issue is the department’s reasoning and whether it makes that reasoning available for review.

How the discussion developed

Consumer Watchdog says the CDI contacted it in August about possible amendments to a separate rule concerning insurers’ projected investment yield. Later discussion questions from the department, according to the group, also raised whether the minimum and maximum rates of return should change.

Consumer representatives asked department staff for a specific factual basis for revising those limits, Consumer Watchdog says, but were not given one. The group describes the department as being in an investigative, listening stage. Representatives from Consumer Watchdog and the Consumer Federation of California Education Foundation said they could not meaningfully respond to the questions without knowing which concern or problem the department intended to address.

The letter says the department raised a concern that a negative minimum rate of return might not be sufficient to prevent inadequate rates. Consumer Watchdog says the department supplied no evidence for that concern and did not identify a particular need for changing either limit. That leaves the central question unresolved: what issue would a revised minimum or maximum be intended to solve, and how would the department assess the effect on consumers and insurers?

Profit figures cited by the group

To support its position that insurers have not shown a need for a higher allowable return, Consumer Watchdog points to national industry figures. The letter cites a September report from Verisk and the American Property Casualty Insurance Association, which put property and casualty insurers’ net underwriting income at $31.7 billion nationwide in the first half of 2026. The letter defines underwriting income as money remaining after claims and overhead, before investment income is counted.

It also cites Allstate’s second-quarter 2026 figures as an example of insurer earnings. According to the letter and Allstate’s second-quarter results, net income reached $3.2 billion, up 56% from the same period a year earlier. The company reported a 44.2% adjusted net income return on equity over the prior 12 months. Property-liability underwriting income rose nearly 57% to $2 billion, while policies in force grew 3.8% to 215.9 million.

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

These figures provide context for Consumer Watchdog’s argument, but they are national and company-level data. They do not, on their own, establish what a suitable California rate-of-return limit should be or how a change would affect a particular policy. The next meaningful detail for consumers will be whether the CDI explains a specific problem, publishes evidence and spells out any proposed revisions for review. Until then, the possibility of a change remains a discussion raised by the department, as described by Consumer Watchdog, rather than a finalized adjustment.