Advocates Seek Cap on Insurer Profits

A well-known consumer group Wednesday called on California Insurance Commissioner Chuck Quackenbush to place caps on the profit margins that insurance companies earn on auto policies and other types of coverage.

The request by Consumers Union, which publishes Consumer Reports magazine, was accompanied by a dramatic reduction in its earlier estimate of how much California drivers were being overcharged on auto insurance. Consumers Union now estimates that drivers were overcharged by $400 million last year--a 50% reduction from its previous projection, released in June. The group revised the figure after taking into account recent rate reductions instituted by the companies.

Consumers Union said auto insurance profits would drop substantially if the state Department of Insurance imposed profit-margin ceilings as called for under Proposition 103, the 1988 rate-rollback initiative.

“Commissioner Quackenbush has refused to set limits on excessive insurance rates and profits,” said Consumers Union senior policy analyst William Ahern. “We are calling on him to follow the law, do his job and complete the rate approval regulations that should protect consumers.”

Although it continues to dispute Consumers Union’s estimate on auto insurance overcharges, the state Department of Insurance agrees on the need for the creation of profit-margin ceilings, Deputy Commissioner Richard Wiebe said.

“Those discussions have already begun, and we hope to complete the regulations in the near future,” he said.

Wiebe noted that the creation of profit-margin ceilings had not been a department priority in light of the recent move by auto insurers to cut rates. So far, several of the state’s 10 largest auto insurers have filed for rate reductions.