California generates unique, challenging and important issues with respect to insurance. By direct initiative (Proposition 103), in 1988 voters of California established a unique regimen of rate and policy regulation. Although Proposition 103 passed by a margin of less than 1%, the system it established may be modified only by further popular initiative or by a 2/3 vote of the legislature. Legislative amendment, even with a 2/3 vote, is valid only if the legislation furthers the purposes of Proposition 103. Thus, from time to time, propositions appear on California’s ballot asking voters directly to vote on insurance matters of considerable complexity and nuance.
Among other mandates, Proposition 103 requires that, regardless of their bearing on relative risk, some automobile rating factors (e.g., years licensed) be weighted more than other rating factors. This regime creates interesting policy issues with respect to which driving groups should cross-subsidize others.
Proposition 103 also established an elected Commissioner of Insurance. This also presents interesting and unique challenges. Like other elected offices, the Commissioner of Insurance is subject to California’s term limit restrictions. Thus, like other elected officials, the Commissioner must direct time and effort towards pursuing opportunities to advance to other offices. This political atmosphere may or may not impact regulatory measures advanced by commissioners. Interestingly, since the inception of this elected office, no commissioner has been elected who enjoyed a background in insurance law or regulation. The immediate past commissioner became Lieutenant Governor and is now a congressman. The current commissioner is running for governor.
California also presents some unique risks. Catastrophic losses from earthquakes and wildfires present serious insurance related issues. Because insurance of major risks is often layered, these risks also present serious challenges with respect to reinsurance. These issues also impact solvency and the assurance that insurers, or the California Guarantee Association which backs them to a limited extent, will be in a position to respond to claims.
As with most states, auto insurance in California is mandatory. Still, affordability and availability issues leave many cars uninsured. Legislative and regulatory measures to address this issue have met with modest success.
Numerous other issues swirl around California insurance, including Health Insurance, Life Insurance, Life Settlements, Worker Compensation, Title Insurance and dozens of other insurance products available in California.
Every session of the California legislature includes scores of bills addressing some aspect of insurance. Congress is also considering an additional federal legislative regime. In addition, California’s appellate courts hand down numerous decisions addressing coverage, bad faith, ethics, damages (e.g., the collateral source rule), and regulatory issues.