Xavier Becerra’s big California insurance plan sounds unconstitutional | Analysis

One of the most underrated moments of the gubernatorial election was Xavier Becerra’s promise to cap homeowners’ insurance premiums.

“I will call in the insurance commissioner,” said Becerra, the former state attorney general. “I will say, ‘I am going to call for a freeze. If you don’t want to go there, then I will call for an investigation of the way you are conducting your business.’”

Becerra is right that there is an insurance crisis in California, but price controls aren’t the answer. Price controls don’t solve underlying issues and ultimately lead to shortages and reduced quality.

But to be clear, Becerra’s idea is unconstitutional. He can’t unilaterally impose a freeze on premiums.

In 1988, California voters passed Proposition 103, a landmark law that sought to protect consumers from arbitrary rate hikes by requiring insurers to get the approval from the state insurance commissioner before raising rates..

The California Supreme Court ruled in 1989 that the hard rate freezes and rollbacks called for in Prop. 103 were only constitutional if they allowed insurers the opportunity for relief. In addition to the rate freezes, Prop. 103 broke the insurance pricing model, made insurance commissioner an elected position, and created a convoluted intervenor process that has driven up costs on consumers and insurers while creating a multi-million-dollar cottage industry for consumer advocate Harvey Rosenfield, Prop 103’s author.

At a recent debate among candidates for insurance commissioner, all but one candidate agreed that Becerra’s proposal seemed unconstitutional on its face.

When pushed for specifics, Becerra said he would ask insurers to freeze premiums willingly, lest they face an investigation. Insurers don’t want an investigation, and if it went to court, they’d likely have to open the books, which no business owner ever wants to do. After all, how low a rate of return would insurers need to prove to satisfy an angry public?

There could be a political win here for Becerra if he’s elected governor and pursued this strategy. But it’s still bad policy.

Like every other expense, homeowners’ insurance rates have risen sharply in the past few years and homeowners are feeling the pinch. But another way of looking at it is that rates were kept artificially low for years as insurers incurred greater costs, largely due to catastrophic wildfire losses.

As a result, many insurers have decided to leave the state, underscoring that businesses will not indefinitely tolerate bad policies. Those insurers that remained in the market had to raise rates.

Like it or not, it is expensive to insure property in California and while none of us likes rate increases, they are sometimes called for to stabilize the market. It’s cheaper in the long run than having to come up with $300,000 to rebuild your house after a fire.

If Becerra were really trying to pitch a solution that worked, he would talk about repealing, or at least amending, Prop. 103, which could allow for timely premium adjustments based on industry-standard pricing models. It could also get rid of the intervenor process and create an appointed insurance commissioner who isn’t a politician and who might actually have some industry expertise.

Becerra would also prioritize greater wildfire mitigation efforts like better forest management and home hardening. More than anything, scaling back Prop. 103 or repealing it entirely would give power back to the Legislature to make systemic fixes as needed, instead of having to endure the costly and time-consuming ballot measure process.

But of course, that solution is far less appetizing to a broader electorate than Becerra saying he’s going to freeze premiums and stick it to insurance companies.

Matt Fleming is an opinion writer living in Placer County. You can follow him on X @Flemingwords or connect via email: [email protected].

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