Opinion: Don’t buy simple theory about why some drivers don’t get insurance

Recent reports about drivers in California experiencing unprecedented difficulties in obtaining insurance have prompted the usual reaction from ardent defenders of Proposition 103. That's the landmark 1988 ballot measure approved by state voters that turned insurance commissioner into an elected position and gave the commissioner the authority to review premiums proposed for property and casualty insurance policies and reject those seen as unduly expensive.

Pure, simple greed is driving insurers' actions, says Proposition 103's author — Harvey Rosenfeld, founder of Consumer Watchdog. Back in 1988, when many premium hikes truly seemed arbitrary and all about puffing up profits, this harsh take was readily backed up. Insurers had few checks on their actions and took advantage. This was plain to a majority of voters, who approved Proposition 103 despite an exceedingly well-funded campaign by the insurance industry depicting the measure as destructive overreach.

Yet in 2023, this view is harder to substantiate. Yes, the point made by consumer advocates remains valid — that making it harder to get auto insurance can be seen as a tactic by insurers to spur public complaints and create pressure on state Insurance Commissioner Ricardo Lara to be more accepting of substantial premium hikes. But as a recent Los Angeles Times account detailed, insurers not just in California but across the nation say that the nation's recent, unusual bout with inflation has made some policies not worth their time to offer. In August, after a massive analysis of the rate-filing requests made by the 10 largest insurers in every state, S&P Global Market Intelligence depicted an industry shaken by "historically poor underwriting results" — meaning its estimates of how much paid claims would cost weren't nearly as reliable as normal. This is in line with an October report from the Federal Reserve Bank of Minneapolis that found that vehicle repair costs had soared in 2023 even as inflation eased. These reports back up insurers' claims that they are trying to maintain their historical profit margins — not profiteering. Here's another piece of relevant evidence: Kemper Independence Insurance and its subsidiary Unitrin Auto and Home Insurance are ending all their policies for California drivers on Jan. 1. That's not a gesture to pressure Lara. That's a sweeping decision by two insurers who have done business here for many years to abandon the nation's largest market.

Rosenfeld is absolutely right that Proposition 103 has created a fairer balance of power between insurers and consumers. But the law must be smartly wielded by the insurance commissioner. That doesn't always happen. A case can certainly be made that Lara's pressure on home insurers to keep offering artificially low premiums to homeowners in areas at high risk of wildfires is a mistake that will end up costing homeowners who chose to live in much safer areas — and will spur even more insurers to abandon the state.

However, when it comes to auto insurance, there is no evidence Lara is behaving in similarly risky fashion. Nevertheless, if the number of California drivers who are eligible for insurance but can't secure any keeps going up, it demands a response from the state. That response must skip any moralizing about "greed" and begin with the acknowledgment that government regulation is not always benign — and that regulators, like insurance underwriters, are not all-knowing.

This story originally appeared in San Diego Union-Tribune.

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