Proposition 103 Is Broken: How California's Insurance Crisis Reached a Breaking Point
When Proposition 103 passed in 1988, it was hailed as a triumph for consumers—a law that promised lower rates, greater fairness, and tighter oversight of "greedy" insurance companies. Nearly four decades later, that same law is being blamed for helping create one of the most dysfunctional insurance markets in the United States.
Insurance expert Karl Susman, a veteran broker and insurance commentator, argues that Proposition 103 is no longer protecting Californians. Instead, it's strangling the insurance system with outdated rules that make it impossible for carriers to adapt to modern realities like wildfire losses, inflation, and climate risk.
In a recent talk titled "Proposition 103 Is Broken: Why California's Insurance Crisis Is About to Explode," Susman lays out in plain terms why the state's 37-year-old regulatory structure is collapsing—and what that means for homeowners, drivers, and the entire economy.
A State on Fire—and an Insurance System on Life Support
Susman begins with the reality that defines life in California today: wildfires. Every year, tens of thousands of homes are destroyed or damaged, and hundreds of thousands of residents are forced to evacuate. In the latest major fire, more than 18,000 structures were lost and over 30 lives were claimed. The human cost, he reminds us, is often overlooked.
"We always talk about acres burned and structures lost. But people died. Whole families had to start from zero."
Susman's own agency lost 141 client homes in that fire alone. Another 50 had partial losses. His team worked around the clock for weeks, helping desperate homeowners file claims, find housing, and start rebuilding their lives.
But behind those tragic numbers lies an even deeper problem: one in ten homes was completely uninsured, and many of those that were insured had inadequate coverage. The reasons, Susman says, tie directly to California's broken insurance market—where shrinking availability, rigid regulation, and soaring premiums are driving both insurers and consumers to the brink.
The Role of Proposition 103: A 1980s Law in a 2025 World
Proposition 103 was written in the era of fax machines, and as Susman quips, "our regulations are still stuck in the fax era."
The law was meant to address skyrocketing auto insurance premiums in the 1980s by imposing strict government oversight. It required insurers to get prior approval from the California Department of Insurance (CDI) before raising rates and forced rate rollbacks for all property and casualty policies. It also allowed consumer groups to intervene in rate filings and turned the Insurance Commissioner into an elected position, politicizing the role.
At the time, these ideas sounded reasonable. But as the industry evolved—with wildfire risk, climate change, and reinsurance costs skyrocketing—Prop 103's rigid rules became an anchor.
Today, it affects not only auto insurance but also homeowners, landlords, condo owners, and renters. Nearly every type of property insurance is governed by Prop 103's restrictions on rates, coverage, and underwriting criteria.
The Vanishing Insurance Bookshelf
To explain how bad things have gotten, Susman uses a simple metaphor: the insurance bookshelf.
Once, brokers like him had dozens of "books" on their shelf—insurance carriers competing for business, each offering different rates, coverage options, and risk appetites. When a client came in, he could shop around, compare, and tailor a policy to fit their needs and budget.
Now, that bookshelf is almost empty.
"It's not hyperbole for me to say there is no property insurance market right now. Compared to what it was, or to any other state—we've got nothing."
Over the past decade, company after company has stopped writing new policies or has begun mass non-renewals. According to Susman, seven of the top 12 carriers have either frozen new business or exited entire markets. The reason isn't a lack of demand—it's the inability to get rate approvals or accurately price risk under Prop 103's outdated formulas.
When the FAIR Plan Becomes the Only Plan
As private insurers retreat, Californians are being forced into the FAIR Plan, the state's "insurer of last resort."
Originally designed for homeowners who couldn't get coverage elsewhere, the FAIR Plan now covers more than 340,000 homes, more than double what it did just five years ago. But FAIR Plan policies are expensive and limited, covering only fire and smoke damage—not theft, water damage, or liability.
Susman warns:
"The FAIR Plan is not a homeowners policy. It's fire-only coverage. And it's really expensive."
His office now handles mostly FAIR Plan claims—and "nine and a half out of ten" are problematic due to limited coverage or ongoing disputes.
Recent court rulings have forced the FAIR Plan to expand coverage somewhat, but the program remains a stopgap, not a sustainable solution. And since the FAIR Plan itself is funded by private insurers, its growing size actually increases pressure on the same companies that are already leaving the market.
How Proposition 103 Broke the System
To understand the mechanics of California's insurance crisis, Susman offers two stark examples—one for auto insurance and one for homeowners—that illustrate how Prop 103's rating restrictions create irrational outcomes.
1. Auto Insurance: Rewarding Bad Drivers
Under Prop 103, California mandates that auto insurers calculate rates primarily using three factors:
Other data—like where someone drives, their vehicle type, or even safety record—are heavily restricted.
Susman gives this example:
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Driver A has multiple accidents, speeding tickets, and even a fatal crash.
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Driver B has a spotless record.
Under Prop 103, after just three years, both drivers qualify for the "California Good Driver Discount."
"They get the same rate in three years. What do you think that's doing to driving habits? It rewards bad drivers."
The result is a distorted system where safe drivers effectively subsidize unsafe ones. Insurers, unable to differentiate accurately between risk levels, are forced to charge everyone more—raising rates for the majority to cover the few.
2. Homeowners Insurance: Treating Unequal Risks as Equal
For home insurance, the same pattern holds.
Susman compares two homes:
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Home A sits on a steep, narrow road in a fire-prone area with no hydrant nearby and several past claims.
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Home B sits at the base of the hill, with a hydrant, smoke alarms, and no loss history.
According to Prop 103, those homes are "the same risk." An insurer can offer minimal discounts for mitigation, but not enough to reflect the real difference in exposure.
"Would you, if it were your money, insure that first home for the same price as the second? Of course not. But that's what the law requires."
Faced with such distortions, insurers have simply stopped writing business altogether in high-risk regions. This, in turn, drives even more consumers into the FAIR Plan—creating a feedback loop of higher costs and shrinking competition.
The Legislative Trap
Even lawmakers who understand the crisis have their hands tied.
Prop 103 is a voter-approved initiative, meaning it can only be amended by another statewide ballot measure unless changes "further its original purpose." Courts have interpreted that clause so narrowly that any major reform is effectively blocked without a new vote.
There are currently 10 bills in the California Legislature that could affect home insurance rules. But as Susman points out, most focus on claims handling and consumer protections after losses—not on fixing the underlying issue of availability.
"You have to have a policy before you can regulate it. Right now, there's no product left to regulate."
In other words, consumer protections are meaningless if no insurer is willing to sell coverage in the first place.
The Myth of "Saving Californians Billions"
Proponents of Prop 103 often claim that the law has "saved Californians billions" since its passage. Susman calls that a mathematical myth.
Without a "control California" to compare against—one where Prop 103 didn't exist—there's no way to prove that claim. In fact, if California had allowed free competition over the last 30 years, more insurers might have entered the market, creating lower prices and better service through competition. Instead, the state has driven carriers out, restricted rate flexibility, and left consumers worse off.
"If we had another California where Prop 103 didn't pass—where companies competed for good clients and charged fair rates—then we could talk about savings. But we don't. What we have is a market that's dying."
The Bottom Line: Regulation Without Reform Equals Collapse
California's insurance system is at a tipping point. Proposition 103, a law written for an era before smartphones, data analytics, and climate volatility, is now suffocating a market that once led the nation in innovation and competition.
The symptoms are everywhere:
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Vanishing coverage options
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Soaring FAIR Plan enrollments
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Delayed rate approvals
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Rising premiums for both good and bad risks
Unless California acts soon—either through a new ballot initiative or major regulatory modernization—the market will continue its downward spiral.
As Susman concludes:
"Proposition 103 isn't protecting consumers anymore. It's protecting a broken system. And if we don't fix it soon, the whole thing could come crashing down."
