CPAN joins bipartisan lawmakers in calling on state government to crack down on insurance industry’s refusal to lower rates in light of corporate tax reform

Lawmakers question why corporate savings not passed down to consumers

LANSING – CPAN today joined with a bipartisan group of Michigan legislators calling on the state Department of Insurance and Financial Services (DIFS) to ensure that insurance companies pass along the savings they received from the federal tax reform enacted last December.

CPAN President John Cornack expressed his support for a letter sent to DIFS Director Patrick McPharlin, submitted by State Rep. Donna Lasinski and co-signed by several Michigan legislators. The letter notes that “if insurers have not adjusted their rates to account for the lower tax, their rates likely became excessive, leaving Michigan residents overpaying for auto, home, and renters coverage they need.”

“Rep. Lasinski is absolutely correct – the insurance industry received a massive tax break as part of federal tax reform, but instead of passing that relief onto consumers, it appears that they’ve once again opted to line their own pockets,” Cornack said. “For too long, state government has looked the other way while the insurance industry has bled residents dry. It’s time for DIFS to stand up to insurers and protect Michigan consumers. All lawmakers fighting to lower auto insurance rates for Michigan drivers should be compelling DIFS to take action.”

In January 2018, the Consumer Federation of America (CFA) sent a letter to McPharlin and state insurance commissioners throughout the country, asking what actions the industry would be taking to reduce rates to reflect the windfall from tax changes and to ensure rates return to reasonable levels.

In her follow-up letter to Director McPharlin, Rep. Lasinski writes: “As we understand it, neither you nor your staff responded to CFA’s query. More important than your lack of response to the CFA, however, is the apparent lack of response to the underlying problem. We are not aware of any systematic DIFS effort to ensure that insurance companies have appropriately reduced their rates in response to changes in federal tax law.”

Instead, insurance companies continue to rake in huge profits while jacking up prices on consumers. During the first nine months of 2018, Allstate, ranked in the top 5 for market share in Michigan, increased its Adjusted Net Income by $716 million over the same time period in 2017, which, Allstate explains, was "driven by higher premiums earned, lower catastrophe losses and a lower effective tax rate…” Meanwhile, Allstate customers saw a total premium increase of $331 million between January 2018 and September 2018 alone.

Douglas Heller, an insurance industry expert who has worked with CPAN to uncover the insurance industry’s discriminatory practice of using factors like gender, job title and ZIP code when setting rates in Michigan, said that the profit provision of an insurance rate filing incorporates anticipated taxes, so the corporate tax cut would allow for a lower rate filing while providing insurers with the same rate of return. Heller noted that earlier this year the California Insurance Commissioner directed his Department’s staff “to commence a regulatory review of these insurers' rates given the major tax windfall under the new federal tax rules” and also issued a notice to all insurers stating that “any insurer with excessive rates, whether in whole or in part due to…changes to the federal income tax rates or due to any other reason, must file a rate change application with the Department to seek an appropriate insurance rate reduction.”

“Consumers Energy and DTE along with many utilities—another regulated industry—announced plans to cut rates due to their tax reform windfall, and insurance companies should be doing the same,” Heller said. “Michigan’s lack of effective oversight of these insurance companies is the main driver of the too-high auto insurance rates paid by policyholders. Requiring stronger regulation is the best way to provide relief to consumers.”