Insurance Commissioner Jones announced he has issued an order that every insurer licensed to write workers’ compensation insurance in the State of California must report their federal income tax savings annually through a rate filing in light of the new tax law.

The recent revision to the Federal Tax Schedule for 2018 reduced the corporate tax rate from 35 percent to 21 percent. Jones says “That means that nationally insurers will now be able to retain even more of policyholder premiums as profit.”

He is referring to the “Tax Jobs and Cuts Act of 2017” signed into law by President Trump on December 22, 2017.

“Any savings to insurers should be passed along to California businesses,” said Commissioner Jones.

Thus, Jones’ order will require each insurer to submit a rate filing to report the dollar amount of their tax savings by December 31, 2018, and on a yearly basis through December 31, 2020.  Insurers will need to provide details about how those savings impact their rates.

The insurer must also provide a detailed explanation if they have determined that there is no rate impact, stating why the reduction in the federal corporate tax rate does not affect their rates.

The Order is broadly written to include tax savings from earnings having nothing to do with workers’ compensation lines of insurance in California. It pertains to profits from any line of insurance, or an business enterprise of an insurance company, as though that would pertain to setting a premium for workers’ compensation insurance risk in the California marketplace.

Nonetheless, Jones maintains that “This order will allow my department to examine workers’ compensation insurers’ savings and rates and provide transparency to the public. I urge insurers to pass these savings along to policyholders.”

Jones has no rate making authority over worker’s compensation insurance pricing in California. Thus it would seem that the outcome of this study would lead to no particular regulatory action other than “transparency” which is already available for most insurance companies that are publicly held. All publicly held corporations are required to file regular certified financial statements with the Securities and Exchange Commission that provide detailed financial and tax information. The Commissioner – and the public – can review this historical and current information at any time.