Among insurance professionals, Florida and California are often cited as cautionary tales. Each state has developed persistent dysfunction in its home and auto insurance markets—but for very different reasons. Florida’s troubles stemmed from runaway litigation that overwhelmed insurers and distorted pricing. California’s challenges, by contrast, trace back to a voter-approved initiative from the late 1980s that continues to shape—and constrain—the market today.
Florida has recently begun to turn a corner. Legislative reforms targeting abusive lawsuits have stabilized the environment, attracted new capital, and encouraged more insurers to re-enter the market. California, however, remains locked into a regulatory framework created by Proposition 103, a law that has governed insurance pricing and oversight for more than three decades. The result has been persistent market strain, limited insurer participation, and growing availability concerns.
The long shadow of Proposition 103
Passed in 1988, Proposition 103 fundamentally reshaped California’s insurance system. It rolled back personal insurance rates, required prior approval for rate changes, barred the use of certain forward-looking models, excluded reinsurance costs from ratemaking, and replaced an appointed insurance commissioner with an elected one.
Most industry observers are familiar with these elements. Less widely understood—but increasingly consequential—is the role played by so-called “intervenors” in the rate approval process.
How intervenors enter the picture
When an insurer seeks a rate increase above a specified threshold—generally around seven percent—it can trigger a formal hearing. At that point, third parties known as intervenors, often consumer advocacy organizations, are permitted to participate and challenge the filing.
Here’s the unusual part: insurers are required by statute to pay the intervenors’ legal and expert fees, regardless of the outcome. Over the past two decades, those payments have totaled tens of millions of dollars.
A substantial portion of that compensation has gone to a single advocacy organization, with other groups receiving smaller shares. In many years, only one intervenor appeared in rate cases, effectively monopolizing the process. Some individual interventions have generated fee awards approaching or exceeding seven figures, driven by high hourly billing rates for attorneys and consulting actuaries.
Notably, one of the most frequently compensated individuals involved in these proceedings was also a principal architect of Proposition 103 itself.
Consequences for pricing and availability
At a structural level, Proposition 103 has severed the traditional link between insurance price and insurance risk. Sound ratemaking depends on aligning premiums with expected losses. When rates are held artificially low—particularly in high-risk regions—insurers face a choice: accept losses or reduce exposure.
California law explicitly states that insurance rates should not be inadequate. Yet the regulatory system has produced exactly that outcome. Homeowners in a state exposed to wildfires, earthquakes, floods, mudslides, civil unrest, and other unique perils pay, on average, less for coverage than policyholders in many lower-risk states.
Nationally, the typical annual premium for $300,000 in dwelling coverage exceeds $2,200. In California, the average is closer to $1,250—placing the state among the least expensive homeowners insurance markets in the country despite its elevated hazard profile.
That disconnect sends the wrong signals. Consumers are not incentivized to mitigate risk, and insurers are discouraged from deploying capital. Over time, the result is shrinking availability, moratoria on new policies, and a growing reliance on residual markets.
Price controls by another name
When government rules prevent prices from reflecting underlying risk, the system ceases to function like a market. Instead, it becomes a form of price control—one that suppresses signals that would otherwise encourage resilience, investment, and responsible risk-taking.
Florida’s recent experience demonstrates what happens when regulatory pressure is eased and pricing begins to realign with reality: capital returns, competition increases, and stability improves. California, meanwhile, continues to grapple with the unintended consequences of decades-old rules that no longer match today’s climate, catastrophe exposure, or capital markets.
A moment for reconsideration
As policymakers nationwide revisit regulatory frameworks in light of climate risk, housing affordability, and insurance availability, California’s system deserves renewed scrutiny. The intervenor model, in particular, raises questions about incentives, costs, and whether the process serves consumers as intended.
Reexamining Proposition 103 does not mean abandoning consumer protection. It means asking whether a rigid, price-constraining system built for another era is still fit for purpose today.
If insurance is to remain viable for both buyers and providers in California, the conversation must move beyond defending legacy structures and toward restoring a functional balance between risk, price, and availability.
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