California insurance: Intermediate, disruptive

In insurance circles, Florida and California have the dubious distinction of being a multi-year problem children for home and car insurance. In both states, insurance markets have been seriously disturbed by unique factors unknown in any other state. In Florida, disturbing litigation had gone wild. Florida is home to “Almost 80 percent“Of the entire country’s total homeowners insurance cases. In California, the disturbance is the legacy of a ballot suggestion, Proposal 103in place since 1988. For 36 years, this law has punished insurance companies doing business in the state so seriously that many acid in California, either to choose not to write business in the state or limit how much business they write there.

Florida’s insurance market is finally on repair, as a result of recently passed compensation Reforms Recovering health to the market, as shown in the creation of eleven new Florida Insurance companies. In California, on the other hand, the market continues to continue with restrictions created by proposal 103.

Proposition 103s Introduction By a selected insurance commissioner, rollback of personal lines, is approval of prior rate and prohibition on reinsurance costs and forward -looking models in ratemaking well -known to insurance profile. A feature of Prop 103, which is less well -understood, is the role of Intervenor.

What is an intervenor?

If an insurance company in California is looking for a rate increase of greater than 6.9 percent, a consultation can be held where “interveners” typically have consumer attorneys, are allowed to challenge insurance companies’ rate change requests. The insurance company seeking the rate change is responsible To pay the intervenor’s fees that may be in millions of dollars, as specified in Cal. Ins. Code § 1861.10.

From 2003 to 2023, insurance companies paid $ 23.1 million for interveners. The lion’s share of Intervenor’s fees went to a company, Consumer Watchdog, previously called Foundation for taxpayer and consumer rights. Other interveners have included the Consumer Association in California, Consumer Union, Southern Christian Leadership Conference, Greenlining Institute, United Concepurrenters et al. During the same period, consumer guard dogs were paid $ 18.4 million alone, while other interveners raised $ 4.7 million overall. Note that for almost half of the 20-year period, consumer guard dog was the only intervenor.

Insurance companies labeled the highest intervenue bills included Allstate, farmers, State Farm and Mercury. In 2017, an intervention that involved state farm fees involved over $ 1.9 million. If this represented legal work performed by a lawyer invoicing California Lodstar Fees of $ 400 per hour the lawyer would have had to work 2.5 years on the only intervention. In a petition about a hearing from 2023 pushing back on a rate hike at Farmer’s Insurance, Consumer Guard Dog revealed That its intervention budget included, among other things, charges $ 595 per hour for his senior personal lawyer, $ 350 per hour for his staff lawyer, $ 695 per hour for work from Harvey Rosenfield, by lawyer and $ 200 hours of $ 915 per hour for advice actuary, in total Close to $ 400,000. It is noted that Rosenfield was the author of Prop 103.

Injuries performed by interveners

Suggestion 103 has artificially suppressed speeds at the rate of disconnection from risk. Insurers’ ratemaking process involves analysis of expected losses to calculate loss costs. If policies are issued in areas at high risk with artificially low prizes that are inadequate at risk, this sends a signal to homeowners that their risk is sufficiently covered by the rate, but it is not. California Statute claims that the insurance rates should not be inadequate. In addition to violating its own statute, this has led to the peculiar phenomenon of California having lower insurance rates than the national average, although California is home to several dangers that other states do not experience. These include mud gliders, fires, earthquakes, floods and rebellion.

The national average annual premium for homeowners insurance for $ 300,000 in housing coverage is $ 2,258, close to twice the average in California of $ 1,250, making California among the nine cheapest markets for homeowners insurance.

Average costs of homeowners insurance by state for $ 300,000 in housing cover (in $)

(Source: Bank Rate)

The above data suggests that suggestions 103, including intervenor interference, have prevented insurance companies from selling their product to risk -adjusted rates. This is price control, Anathema for those who favor free market policies, where prices are determined by supply and demand, rather than state imposed prices. In a state -controlled pricing economy, price signals are sent that would otherwise incentive consumers to pursue risk management and pay risk -adjusted rates. In today’s regulatory cutting environment, this may be the right time to shed light on the legacy of Proposition 103 and consider sending it into the trash of history that makes insurance buyers and providers.

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California