California Proposition 103, Research Paper Example

Introduction

Proposition 103, issued in the State of California in 1988 as a means of establishing approval in the state government for some homeowner, automobile, and commercial insurance coverage rates, was highly controversial during its time because it required these rates to be reduced by 20 percent, while also considering the impact of a “fair and reasonable” rate of return for these insurance providers (Roth). This proposition requires an understanding of what is meant by “fair and reasonable” and what is required to approve an insurance rate provision (Roth). The bill determined that it was illegal to keep rates at cost prohibitive rates, because they were deemed unaffordable and caused many problems associated with litigation during this period (Glans). Therefore, it was important to scale back these rates in response using a legal mandate to scale back on the demands of the auto insurance industry (Glans). This resulted in a number of challenges that led to controversy and a difficult case of contradictions regarding the proposition and how it impacted residents of the state and their insurance rates.

Analysis

Proposition 103 was created in response to a number of issues that were taking place in California during the mid-1980s, when insurance companies were charging rates that were highly unaffordable and unacceptable by consumer standards (Glans). The state attempted to fight back against insurance companies and the subsequent wave of litigation through the introduction of this proposition as a means of fighting back against the insurance establishment (Glans). This was an important step for consumer confidence, because it enabled state residents to be able to afford auto insurance rates that had become very high (Glans). At the same time, it was important for the auto insurance industry to be taught a lesson regarding their activities and to be provided with a framework for addressing these concerns in a public manner that would support consumer needs and expectations in different ways.

To date, the passage of Proposition 103 has been largely successful, as it has been able to be effective in addressing the needs of a large-scale population where insurance needs are substantial (Glans). This decision has enabled consumers to have greater control over what they spend for car insurance, because this is a necessity and a legal requirement as mandated by the state (Glans). At the same time, this decision provided a greater sense of accommodation for California residents in their efforts to be productive and successful in supporting the needs of its residents. However, in spite of the advantages of this proposition, there were also critics to consider, who demonstrated their lack of support for this proposition in many ways (Glans).

Opponents of Proposition 103 argued that the government should not have a significant level of influence or impact on governing pricing within the insurance industry because this leads to poor outcomes over the long term (Glans). This opposition sought to convey prior evidence of failure in this area and also demonstrated a lack of focus and understanding regarding the needs of California residents (Glans). In this context, it was believed that there were other ways of dealing with skyrocketing insurance rates that would not involve the need for a state-mandated proposition (Glans). This was an important reminder that significant oversight regarding some matters should not be left up to the states and that other factors should also be considered that would allow greater freedom in the state with respect to insurance rates and governance in this area (Glans).

The creation of an environment whereby insurance pricing is regulated by the state is a complex process, yet it was highly effective in demonstrating the value of different perspectives in supporting the needs of state residents. Based upon the facts related to this proposition, it appears to be a positive driving force in enabling insurance rates to be affordable in a state where there are a significant number of cars on the road. As a result, insurance is an absolute necessity that must be governed to some degree by the state so that premiums are affordable for residents. Although this poses some degree of risk to insurance companies as they cannot establish their own rates, it nonetheless represents a challenge to the status quo and requires insurance companies to be more proactive in establishing their rates and in demonstrating their commitment to consumers rather than the bottom line. This is perhaps the most significant area to consider and provides greater evidence of the development of new strategies for improvement that will support the health of California’s driving population on many levels.

Conclusion

Insurance in the 1980s in California required an overhaul that only the state government could provide; therefore, the passage of Proposition 103 was an effort to improve the health of the auto insurance industry in the state. This was also an important step towards the discovery of new techniques and challenges that could have a positive impact on governing insurance rates, which appeared to be out of control and cost prohibitive in many respects. This mandate supports the continued growth and governance of the auto insurance industry’s pricing strategies in order to protect and preserve the financial health and wellbeing of the consumer population within the state, as well as to protect the overall integrity of the insurance industry and its level of authority over its pricing.

Works Cited

Glans, Matthew. “Research & commentary: insurance price controls and California Proposition 103.” 25 April 2014: https://heartland.org/policy-documents/research-commentary-insurance-price-controls-and-california-proposition-103

Roth, Richard J. ”Observations of the California Proposition 103 debate over profitability and surplus.” The Third International Conference on Insurance, Solvency, and Finance, 25 April 2014: http://www.casact.org/pubs/forum/92spforum/92sp001.pdf