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Letter to the editor: California’s looming insurance crisis avoided | Letters to the Editor

by Cedric Guzman

Title: Addressing the Complexities of Insurance Policy in California

California’s insurance system has been plagued with complexity and inefficiency for decades. While efforts have been made to address these issues, they have often worsened the problem. In order to find a sustainable solution, it is essential to examine the root cause, which can be traced back to Proposition 103 passed in 1988. This article argues for the repeal of Proposition 103 in order to restore a more effective system of insurance regulation in California.

A Departure from Traditional System:
Proposition 103 shifted California away from the traditional system of “free and open competition” in the insurance industry, moving it further from the vision of the country’s founders. The legislation introduced prior approval, which requires insurers to obtain formal approval from the Department of Insurance before implementing rate adjustments. This has significantly hindered the ability of insurers to respond swiftly to market dynamics and offer competitive rates.

The Impact of Elected Commissioners:
Moreover, Proposition 103 mandated the election of insurance commissioners, rather than appointing qualified professionals. This has led to the rise of career politicians as commissioners, who often lack a deep understanding of the complexities of the insurance industry. By electing insurance professionals to these positions, the industry can benefit from specialized expertise and leadership capable of navigating its intricate nuances.

A Simple Solution:
One potential solution to this problem is the adoption of the “file and use” system, which is employed by 39 other states. Under this system, rate adjustments are implemented immediately upon filing, as long as insurers provide evidence that their adjustments are “adequate, not excessive, and not unfairly discriminatory.” This streamlined approach would allow insurers to respond effectively to market conditions, benefiting both the industry and consumers.

Rejoining Other States:
By repealing Proposition 103 and adopting the file and use system, California would align itself with a majority of other states that have found success with this approach. Restoring trust in the insurance industry and enabling it to function in a more competitive and efficient manner will ultimately benefit all stakeholders, from insurers to policyholders.

Continued Focus on Risk Control:
While rectifying the shortcomings of Proposition 103 is essential, it is also crucial for individuals and businesses to continue practicing risk control measures. This includes both risk reduction and risk elimination strategies, which play a vital role in mitigating the impact of potential catastrophes. With a reformed insurance system and a commitment to risk control at an individual level, California can navigate the challenges it faces and ensure future financial stability.

California’s insurance system has suffered from increased complexity and inefficiency as a result of Proposition 103. By repealing this legislation, the state can embrace a more effective approach to insurance regulation, promoting competition and responsiveness while benefiting both insurers and policyholders. It is time to restore a system that works for all parties involved, ensuring a secure and prosperous future for California.

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