Trends and Insights: Proposition 103 and California’s Risk Crisis

Proposition 103 and California's Risk Crisis

California is not the only U.S. state struggling with insurance availability and affordability. But its problems are exacerbated by Proposition 103—a 1988 measure implemented by the state legislature that severely constrains insurers’ ability to profitably insure property in the state. Instead of letting insurers use the most current data and advanced modeling technologies to inform pricing, this three-decades-old measure—in a dynamically evolving catastrophe environment—requires them to price coverage based on historical data alone. Proposition 103 also restricts accurate underwriting and pricing by barring insurers from incorporating the cost of reinsurance into their prices.

In late September 2023, California Insurance Commissioner Ricardo Lara announced a package of executive actions aimed at addressing some of the challenges included in Proposition 103. Lara has given the department a deadline of December 2024 to have the new rules completed.