A year after I joined the Orange County Register’s Editorial Board in 1987, the next year voters narrowly approved Proposition 103, 51% to 49%. We met with its author, Consumer Watchdog founder Harvey Rosenfield, but he didn’t convince us. We opposed it, warning interference in the marketplace just makes things worse.
Prop. 103 cut rates 20% on automobile and property/casualty insurance and made the insurance commissioner an elected position responsible for approving future rate increases. Consumer Watchdog recently boasted, “Using the provisions of Prop 103, Consumer Watchdog has lowered rates and saved Californians over $150 billion over the last twenty-five years.” Yeah – if you can get insurance at all.
Veteran California columnist Dan Walters called the current crisis over homeowners’ insurance a “market meltdown.” Last month Insurance Commissioner Ricardo Lara announced a public hearing March 26 about his proposed changes to solve the problem. “By updating submission procedures and clarifying requirements for insurance companies, we aim to eliminate confusion, reduce delays, and enhance public participation in the rate-making process,” he said.
There are two problems. First the market, not an elected bureaucrat, should be making pricing decisions. Insurance companies don’t have to do business here. Some have already left.
In January, the Hartford Financial Services Group followed Allstate and State Farm and canceled its involvement in Californian housing insurance, although continuing to offer other insurance. The Hartford said the state’s “unique challenges” forced it to leave.
On March 13 the Assembly Insurance Committee heard testimony by Victoria Roach, president of the California FAIR Plan. Not a government agency, it’s a syndicated fire insurance pool comprised of all property/casualty insurers in the state and providing coverage to those who can’t get it elsewhere, including those in wildfire areas. She said, “We are one event away from a large assessment” as high as $2 billion.
Responded Assemblyman Jim Wood, D-Healdsburg, “We’re like one bad fire away from complete insolvency.” She agreed.
On March 14, Lara announced the release of his new “catastrophic modeling regulation,” the latest plank in his Sustainable Insurance Strategy. Rosenfield charged the action “appears drafted to limit the information available to the public about the impact of models on rates in violation of Proposition 103.” He pointed out the catastrophic modeling hasn’t worked for Florida’s hurricane insurance industry.
The second problem is it was a mistake to make the insurance commissioner an independent position. How many people even know Lara’s name, even though he was elected twice? He’s maybe best known for a lawsuit filed against him in 2020 by none other than Consumer Watchdog for his “refusal to provide certain records in response to two California Public Records Act requests” after receiving $54,300 in campaign contributions from “individuals linked to two insurance companies.”
A trial court ruled against Consumer Watchdog. “Unfortunately the Court of Appeal declined to overturn the trial court ruling in this case,” Litigation Director Jerry Flanagan told me. He said it means the “public continues to have difficulty accessing public records concerning the conduct of the people’s business by state agencies and government officials.”
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Granted this is a major problem that will be difficult to solve. In the past decade, California has suffered 14 of its 20 most destructive wildfires. Problems beyond insurance include building homes too close to forests and the state’s tardiness in “undergrounding” more power lines, which can spark and ignite fires.
In sum, the first step in restoring California’s insurance markets to a solid basis is to repeal Prop. 103. Put the commissioner’s position back in the governor’s cabinet. Everybody knows who the governor is and can hold him accountable. An added impetus to solving insurance problems is that most governors, including Gov. Gavin Newsom, hold ambitions for the voters to promote them to the White House.
And the price caps should be done away with because price controls always in the end distort markets, cause shortages and hurt consumers. As we predicted 36 years ago, Prop. 103 didn’t solve California’s insurance problems, but made them worse. Time to cancel it.
John Seiler is on the SCNG Editorial Board and blogs at johnseiler.substack.com