Prop. 103 repeal is a good if unlikely idea

The Editorial Board, The Orange County RegisterOrange County Register

News reports have pointed to a newly proposed ballot initiative that would repeal California’s system of insurance regulation that took effect after voters approved Proposition 103 in 1988.

If voters approve the “California Market Reform Act of 2026,” it would impose dramatic—and largely laudable—changes in the state’s insurance system.

Think of it as a useful thought experiment, given there’s little chance of that happening.

Submitted by a Sacramento-area insurance agent, the measure appears to lack the kind of insurance-industry and political backing that would be necessary to gather the requisite signatures—and then run a multimillion-dollar political campaign to get it approved.

Anyone in California with a spare $2,000 can submit an initiative.

People sometimes do so to make a serious point, while others introduce asinine measures that generate outraged newspaper headlines (such as one named after the alleged killer of a healthcare CEO).

This one falls into the former category, as it highlights what’s wrong with California’s struggling insurance markets, even if it is, as CalMatters describes it, a long shot.

As California homeowners have noticed, property insurers have been reducing their underwriting here, making it harder to find policies and overburdening the state-created last-resort plan.

The proximate cause: losses from a series of wildfires. But the main cause is Prop. 103, which instituted a prior-approval system whereby the elected insurance commissioner has the power to approve rate hikes or even roll back prices.

This price-control system has limited insurers’ ability to price their policies at market rates.

As explained by columnist Adam Summers in May, “For insurance markets to work properly, insurers must be able to set their own prices and utilize accurate actuarial data, not be subject to the arbitrary whims of state regulators and so-called consumer advocate organizations like Consumer Watchdog, which have formed their own cottage industry recovering legal fees when they challenge rate hikes.”

Yet that is the bind insurance markets are in because of Prop. 103 and the political profitability of demonizing insurance companies. Unable to make up for wildfire losses, many insurers have been leaving, thus reducing competition and increasing prices over time.

Insurance Commissioner Ricardo Lara has, however belatedly, approved some needed reforms by allowing insurers to factor rising reinsurance rates into their calculation and use forward-looking catastrophe models.

These reforms are helping, but the state’s insurance system still is in trouble and will need further liberalizing if it’s going to work properly.

As Summers further explained, “By restoring a free and competitive market, insurers would have the confidence to start writing policies again, and price signals and risk models would more accurately tell us where we should build—and where we should not.”

At some point, California voters need to revisit Prop. 103, but it’s not going to happen until the industry and some prominent politicians realize that doing so is the answer.