Time for a progressive approach to insurance regulation
California adopted Proposition 103 in 1988, setting in legal stone how the state approves certain insurance rates. The result has been tremendous opportunity cost for California consumers, as other states have pursued systems that allow a much faster pace of product innovation and approval.
This isn’t exactly a surprise. Prop. 103 was approved when President Ronald Reagan still sat in the White House. The law reflects the prevailing wisdom of the period, during which insurance rates were rising unceasingly. It sought to prevent insurers from raising their rates and, in the process, also ensured they’d almost never cut them.
Perhaps without completely understanding what they were voting for — there were five insurance measures on the 1988 ballot — Californians cemented in place a law that prevented their rates from declining as the state’s insurance cost drivers began to ebb.
Even early on, Prop. 103 proved to be the antithesis of the sort of smart, efficient and responsive governance that contemporary Californians seek to empower. Its legacy has continued that theme.
In fact, though touted as a consumer-protection law, Prop. 103 has effectively shackled the California Department of Insurance and its current elected head, Dave Jones, to a system over which they have limited control. The CDI’s best efforts to be quick, nimble and flexible in its cultivation and approval of rate changes are frustrated by Prop. 103, which makes a reasonable speed-to-market virtually impossible.
In a recent study completed by the R Street Institute, comparing California’s rate-approval process to that of other states, the effect of Prop. 103 jumps off the page. California has fewer rate filings (one-third as many as Illinois and half as many as New York) and a slower speed-to-market (according to some measures, by orders of magnitude) than any of the other states examined.
Efforts to improve Prop. 103 have been stymied and confused by bafflingly conservative rhetoric from quarters typically associated with reform. The “consumer-protection industry” is keen to double down on the nonexistent benefits of Prop. 103, because the regime it created provided them with a steady flow of cash.
California is the only state that allows private parties to intervene in insurance rate-making proceedings. The purported savings achieved by this redundant process are hard to quantify, particularly when placed in the context of the chilling effect it has had on the market as a whole. What’s certain is that intervenors are well-compensated for their time and have slowed rate approvals to an embarrassing crawl.
A process that takes 26 days in Nebraska, 55 days in Washington and 58 days in New York takes a whopping 139 days in California. In exchange for the delay, California enjoys auto-insurance rates that are higher than all of those states. In fact, they are the seventh-highest in the nation.
Is it any wonder that, last year, Californians overwhelmingly rejected Proposition 45, an effort to extend this system to the health insurance market? Which raises the question: Is Prop. 103, as it exists today, something a progressive should support?
If he or she believes laws should be written and executed for the benefit of special interests rather than the state as a whole; that regulation should limit choice; that it should be shifted to private hands and innovation should be slowed to a crawl, then the answer is yes.
Fortunately, the answers to every one of those questions is no. A truly progressive approach would benefit all Californians. Whatever that approach is, it would not look anything like Prop. 103.