Why Proposition 103 Is Fueling California’s Insurance Crisis

Published Date: 10/18/2025

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 insurance companies. Nearly four decades later, that same law is now 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 Instead, it is constraining the insurance system with outdated rules that make it nearly impossible for carriers to adapt to modern realities like wildfire losses, inflation, and accelerating climate risk.

In a recent talk titled “Proposition 103 Is Broken: Why California’s Insurance Crisis Is About to Explode,” Susman explains in clear terms why the state’s 37-year-old regulatory structure is collapsing—and what that means for homeowners, drivers, and the broader economy.

Wildfires and a System Under Extreme Pressure

Susman begins with the defining reality of modern California: wildfires. Each year, tens of thousands of homes are destroyed or damaged, and hundreds of thousands of residents are forced to evacuate. In one recent major wildfire alone, more than 18,000 structures were lost and over 30 lives were claimed.

“We always talk about acres burned and structures lost,” Susman says. “But people died. Whole families had to start from zero.”

His own agency lost 141 client homes in that fire alone, with another 50 sustaining partial losses. His team worked nonstop for weeks helping displaced families file claims, secure housing, and begin rebuilding.

Behind these tragedies sits a deeper systemic problem: nearly one in ten homes was completely uninsured, and many insured properties were severely underinsured. Susman ties this directly to shrinking availability, rigid regulation, and soaring premiums.

Proposition 103 in a Modern Risk Environment

Proposition 103 was written in the era of fax machines. As Susman puts it, “our regulations are still stuck in the fax era.”

The law was designed to curb rising auto insurance premiums in the 1980s. It requires insurers to obtain prior approval from the California Department of Insurance before raising rates, allows consumer groups to intervene in filings, mandates rate rollbacks, and makes the Insurance Commissioner an elected official.

While these ideas once made sense, the world has changed. Wildfire exposure, construction inflation, global reinsurance markets, and climate volatility have created risks that did not exist when the law was written. Yet the regulatory framework has barely evolved.

Today, Proposition 103 governs nearly all property and casualty insurance in California, including homeowners, renters, condos, landlords, and auto insurance. What was once consumer protection has become a structural bottleneck.

The Disappearance of Insurance Market Competition

Susman explains the crisis using what he calls the “insurance bookshelf.” Years ago, brokers had dozens of carrier options. They could compare prices, coverage, and risk tolerance, creating competition that benefited consumers.

Today, that bookshelf is nearly empty.

“It’s not hyperbole for me to say there is no property insurance market right now,” Susman says. “Compared to what it was—or to any other state—we’ve got nothing.”

Over the past decade, many major carriers have stopped writing new policies or begun large-scale non-renewals. According to Susman, seven of the top twelve insurers have either frozen new business or exited entire markets. The problem is not demand—it is the inability to adjust rates or price risk accurately under Proposition 103.

When the FAIR Plan Becomes the Default Option

As private insurers retreat, more Californians are being pushed into the California FAIR Plan, the state’s insurer of last resort. Originally designed as a temporary safety net, the FAIR Plan now covers more than 340,000 homes—more than double its size from just five years ago.

But FAIR Plan policies are expensive and limited. They typically cover only fire and smoke damage and exclude theft, water damage, and liability unless supplemented with additional policies.

“The FAIR Plan is not a homeowners policy,” Susman warns. “It’s fire-only coverage. And it’s really expensive.”

His office now handles mostly FAIR Plan claims, and he describes nearly all of them as problematic due to coverage gaps or disputes. Because the FAIR Plan itself is funded by private insurers, its rapid growth also increases financial pressure on the same companies already pulling out of the market.

How Proposition 103 Distorts Risk-Based Pricing

Susman illustrates how Proposition 103 breaks the system with examples from both auto and homeowners insurance.

For auto insurance, the law requires rates to be based primarily on driving record, miles driven, and years of driving experience. Other relevant data points are heavily restricted.

He gives a stark example. One driver accumulates multiple accidents, speeding tickets, and even a fatal crash. Another has a spotless record. After three years, both qualify for the same “California Good Driver Discount.”

“They get the same rate in three years,” Susman says. “That rewards bad drivers.”

For homeowners, the same distortion applies. A home on a steep, isolated fire road with no hydrants and a history of claims is treated similarly to a well-protected home at the base of a hill with modern safety features and no loss history.

“Would you insure those two homes for the same price if it were your money?” Susman asks. “Of course not. But that’s what the law requires.”

Unable to properly differentiate risk, insurers simply withdraw from high-risk areas.

Why Legislative Reform Is So Difficult

Even lawmakers who understand the crisis face major legal barriers. Because Proposition 103 was passed by voters, it can only be meaningfully amended by another statewide ballot measure unless changes strictly “further its original purpose.”

Courts have interpreted that clause so narrowly that significant reform is effectively blocked without a new public vote.

There are multiple insurance-related bills in the Legislature today, but most focus on claims handling after losses—not on fixing the core issue of availability.

“You have to have a policy before you can regulate it,” Susman says. “Right now, there’s no product left to regulate.”

The Myth of Billions in Consumer Savings

Supporters of Proposition 103 often claim that the law has saved Californians billions of dollars. Susman calls this a mathematical illusion.

There is no alternate version of California to compare against—no market where Proposition 103 never existed. Without that control, savings claims cannot be proven. In fact, he argues that open competition over the last three decades might have driven prices lower through increased choice and innovation.

Instead, California has restricted rate flexibility, discouraged competition, and driven carriers out—leaving fewer options and higher costs for consumers.

“If we had another California where Prop 103 didn’t pass,” Susman says, “then we could talk about savings. What we have now is a market that’s dying.”

What This Means for California’s Insurance Future

California’s insurance market is at a tipping point. A law written for a pre-digital, pre-climate-crisis world is now governing a system overwhelmed by wildfire losses, inflation, and global reinsurance pressures.

The warning signs are everywhere: vanishing coverage options, exploding FAIR Plan enrollment, delayed rate approvals, and rising premiums for both good and bad risks.

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.”

For California policyholders, the crisis is no longer abstract. It is reshaping what it means to be insurable in one of the most disaster-exposed states in the nation.