How Proposition 103 Worsens Risk Crisis in California

California is not the only U.S. state struggling with insurance availability and affordability, but — as described in a new Triple-I Issues Brief — its problems are exacerbated by a three-decades-old legislative measure that severely constrains insurers’ ability to profitably insure property in the state.

Instead of letting insurers use the most current data and advanced modeling technologies to inform pricing, Proposition 103 requires them to price coverage based on historical data alone. It also bars insurers from incorporating the cost of reinsurance into their prices.

Insurers’ underwriting profitability is measured using a ‘combined ratio’ that represents the difference between claims and expenses insurers pay and the premiums they collect. A ratio below 100 represents an underwriting profit, and one above 100 represents a loss.