Live by Prop 103, Die by Prop 103

Wildfire has hit Assemblymember Damon Connolly’s (D-San Rafael) Northern California district significantly arduous lately, together with the devastating Glass and LNU Lightning Complex fires in 2020, the Nuns and Tubbs fires in 2017, and the Valley hearth in 2015.

In the wake of that destruction has come the predictable insurance-market dislocation: huge charge will increase for householders insurance policies, scores of nonrenewals, and a flood of functions to affix the already-burdened California FAIR Plan.

Noting particularly the elevated burden this has had for seniors in his district, particularly these in additional rural and fire-prone areas, Connolly is proposing a legislative automobile to supply reduction. AB 478, anticipated to be heard quickly by the Assembly Insurance Committee, would prohibit nonrenewals of householders insurance policies held by named insureds who’re 65 or older for properties situated in areas deemed at “high” or “very high” threat of wildfire. It additionally would cap premium hikes for these insureds at 25%, would solely allow such hikes as soon as each 5 years, and would grant the insured three years to repay any elevated premiums.

There are loads of considerations one might (and I might) elevate with the substance of the invoice, whereas nonetheless acknowledging the validity of the difficulty Connolly needs to handle. But there’s only one downside: beneath the phrases of California’s 35-year-old Proposition 103, the measure is facially unconstitutional.

Connolly acknowledges that the measure seeks to amend Prop 103, which is why its textual content notes that it could require a two-thirds vote in each chambers of the California State Legislature to go. But that’s truly not the one requirement to make modifications to a voter-passed proposition in California. To take impact, the invoice should even be deemed “to further its purposes.”

What precisely does that imply? Well, as the two^nd District Court of Appeal of California wrote within the 1998 choice Proposition 103 Enforcement v. Quackenbush:

Any doubts ought to be resolved in favor of the initiative and referendum energy, and amendments which can battle with the subject material of initiative measures should be achieved by well-liked vote, versus legislatively enacted ordinances, the place the unique initiative doesn’t present in any other case.

Prop 103’s acknowledged functions have been to “to protect consumers from arbitrary insurance rates and practices, to encourage a competitive insurance marketplace.” To accomplish these functions, the legislation circumscribes a restricted (I might argue, far too restricted) set of risk-based variables that insurers might think about in underwriting and rate-setting. Some of these components are necessary and the set of them is to be thought-about exhaustive; insurers might not add any new variables to the checklist, even when they’ll produce actuarial justification for his or her use.

An insured’s age is just not a permittable variable beneath Prop 103 for householders insurance coverage insurance policies. There can be no cause to suspect that the usage of age can be actuarially justified. Indeed, prescribing necessary householders insurance coverage reductions on the idea of age is exactly the form of “arbitrary practice” that Prop 103 was handed to ban.

Moreover, granting favorable charges and underwriting standards to some insureds based mostly solely on their age, with none justification of their underlying threat profile, would seem to violate not solely the needs of Prop 103, but in addition California Civil Code Section 5. Also often called the Unruh Civil Rights Act, that legislation supplies “protection from discrimination by all business establishments in California … because of age, ancestry, color, disability, national origin, race, religion, sex and sexual orientation.”

It can be utterly comprehensible if Connolly, a duly elected consultant of the individuals of California, have been to really feel pissed off that even a measure that receives two-thirds majorities in each chambers of the legislature is held hostage to the outcomes of a poll measure handed 35 years in the past by a naked 51% majority of the general public. Indeed, I’ve written right here earlier than about how California’s initiative course of usually, and Prop 103 particularly, perverts the democratic course of.

But he wouldn’t be the primary. If there’s anybody who is aware of the ache of coming to grips with this paralyzingly rigid legislation, it’s George Joseph, the 101-year-old chairman (and erstwhile longtime CEO) of Mercury General.

A legend of the insurance coverage business, the person who principally invented risk-based auto insurance coverage charges within the Nineteen Sixties, Joseph launched into a greater than 20-year battle to amend Prop 103 in a single small however easy approach. All he wished was to have the ability to provide “persistency” reductions—which Prop 103 permits insurers to grant to their very own long-term insureds as a loyalty reward—to clients who saved steady protection with different insurers.

Given the proof that insurance coverage clients are likely to undergo from “lock in” and don’t store round for alternate options as soon as they decide a service, Joseph’s technique was unquestionably pro-consumer. Indeed, lately, the business has come beneath hearth for controversial pricing practices that exploit that very shopper apathy and cost larger charges to these insureds deemed least more likely to store round. Mercury’s plan was the antidote to all of that.

Or, at the very least, it could have been, in the event that they have been allowed to maintain it. For a time within the Nineteen Nineties, then-California Insurance Commissioner Harry Low permitted the corporate to supply a modified model of the low cost, however the courts disagreed. In the early 2000s, with Mercury’s sturdy endorsement and with the required two-thirds majorities, the legislature handed and then-Gov. Gray Davis signed SB 841, which might have amended Prop 103 to explicitly allow persistency reductions. Again, the courts struck it down.

Good intentions however, within the off probability that AB 478 additionally receives the required two-thirds help in each chambers, there’s no query it could additionally meet the identical destiny.