News
California · Homeowners Insurance · Proposition 103 · Regulatory Failure
California's homeowners' insurance market is facing a severe crisis, characterized by major insurers restricting new business and failing to renew existing policies.
This has led many homeowners to rely on the FAIR Plan, the state's insurer of last resort, which is now on the brink of insolvency and required a $1 billion bailout. The core issue identified is the state's regulatory system, particularly Proposition 103, which mandates a "prior approval system" for insurance rates.
This system is criticized for rendering rates inadequate relative to risk by restricting the variables insurers can use, imposing regulatory lag, and limiting rate increases to 6.9% without a hearing. The article argues that this "regulatory rate suppression" disconnects rates from reality, forcing insurers to withdraw from the state.
The author advocates for the repeal of Proposition 103 and a return to an "open competition" model to allow rates to accurately reflect risk and encourage market stability.
