NEW YORK, March 14, 2024—California’s regulatory restrictions on insurance pricing and underwriting, along with the need for more mitigation efforts, are significantly impacting the insurance industry in the state, as highlighted in the Insurance Information Institute’s (Triple-I) latest Issues Brief.

The report, titled Trends and Insights: California’s Risk Crisis, discusses how Proposition 103 and its regulatory implementations are hindering insurers from adapting to the evolving risk landscape in California. Sean Kevelighan, CEO of the Triple-I, emphasized the need for California's insurance regulatory system to evolve, stating, "Much has changed in the world since 1988 when Proposition 103 came into effect, and it's well over time to evolve California’s insurance regulatory system."

Kevelighan also praised the recent proposed changes by the California Department of Insurance, noting that they are a step in the right direction but stressing the urgency of bringing stability to the market in one of the largest state economies. He stated, "While the recently proposed changes by the California Department of Insurance are a move in the right direction, it is becoming increasingly critical to quickly bring market stability into one of the largest state economies."

The Issues Brief pointed out that Proposition 103 has hindered premium rate adjustments by allowing consumer advocacy groups to intervene in the rate-approval process. This has resulted in delays in responding to market changes and has driven up legal and administrative costs for insurers. Consequently, some insurance companies have chosen to limit or reduce their operations in the state, leading to limited insurance options for Californians.

Furthermore, the report highlighted that the California FAIR Plan, the state’s insurer of last resort, has seen increased usage as private insurance options dwindle. This has resulted in less coverage for higher premiums for Californians.

In response to these challenges, California Insurance Commissioner Ricardo Lara introduced a Sustainable Insurance Strategy in September 2023. The strategy allows insurers to use forward-looking risk models that prioritize wildfire safety and mitigation, with the condition that insurers cover homeowners in wildfire-prone areas at 85% of their statewide coverage.

The Issues Brief emphasized the importance of accurately valuing risk in pricing coverage, noting that proposals aimed at lowering insurance premiums may exacerbate the problem if they do not consider the true cost of risk. It pointed out California’s Proposition 103 as a barrier to accurately pricing coverage and highlighted the need for reforms to ensure market stability and growth in the state.

In conclusion, the report underlines the necessity for California to adapt its insurance regulatory system to reflect the current risk environment and ensure the availability of affordable and comprehensive insurance coverage for its residents.