Is California’s Prop 103 System ‘Democratic’?

By | August 18, 2020

Defining the term “democracy” has long been a challenging proposition. Nearly all agree that a democracy is a government that reflects the will of the people, but questions about the particulars, of what structures are wise or useful to harness or to temper that will, have been with us since the days of Ancient Greece.

But to Harvey Rosenfield—founder of Consumer Watchdog and author of California’s Proposition 103—the answer is quite simple. Democracy is doing what Harvey Rosenfield wants. Anything else is, as he puts it in a recent Sacramento Bee op-ed, “hijacking the democratic process.”

What currently has Rosenfield’s dander up are a pair of bills, A.B. 2167 and S.B. 292, that look to make modest changes to the Prop 103 system of insurance regulation. The measures come in response to the devastating 2017 and 2018 wildfires that caused a combined $24 billion in insurance claims. They also come at the start of yet another wildfire season that already has seen the Lake Fire near Lake Hughes blaze through 18,000 acres, while a second Los Angeles County fire, the Ranch2 Fire near Azusa, has consumed more than 2,500 acres. Near the Nevada border, the Loyalton Fire has burned more than 30,000 acres.

Given both the recent losses and the projection for growing wildfire risk because of climate change, several property insurers have curtailed or scaled back writing coverage in the most wildfire-prone parts of the state. Indeed, as a recent report by the reinsurer Swiss Re suggests, this growing protection gap could be part of a global phenomenon: roughly 60 percent of the $75 billion in natural catastrophe losses seen in the first half of 2020 were uninsured.

The pullback by private insurers leaves many Californians with no other option but the state-backed insurer of last resort, the California FAIR Plan. That bodes poorly for the state’s future. The Federal Reserve Bank of San Francisco recently estimated that 52 percent of the economic activity across the 12th Federal Reserve District, which includes California and eight other Western states, originates in counties with elevated wildfire hazard. An inability to secure property insurance protection poses a systemic financial risk to the West.

A.B. 2167 and S.B. 292 look to address this crisis by creating the Insurance Market Action Plan program, which would apply to certain counties with large proportions of FAIR Plan policies. The program would permit insurers that agree to take on a significant number of policies in IMAP counties to file expedited requests for adequate rates, which would be required to consider property and community-level mitigation measures. Rate requests also could include the output of catastrophe models and the market cost of reinsurance, factors that are difficult or impossible to submit for consideration under the existing Prop 103 system. IMAP would recognize that, because of climate change, wildfire risk in the future may be significantly more severe than it has been in the past.

The bills do not overturn Prop 103. Rate filings still would be open for comment by the public and would still be reviewed and regulated by the state insurance commissioner. But the bills would tweak the process slightly to allow market forces to respond to what has been and threatens to continue to be a shortage of insurance protection. Because it proposes to make changes to Prop 103, state law requires that the bills must pass by two-thirds majorities in both chambers.

The good news is that they are well on their way to doing that. After clearing the Senate Insurance and Veterans Affairs committees unanimously in April 2019, S.B. 292 was approved unanimously by the full Senate in May 2019. It has since moved unanimously through the Assembly Insurance Committee in May 2020 and was up today before the Assembly Appropriations Committee.

A.B. 2167 was passed unanimously by the Assembly Insurance Committee in May and the Assembly Appropriations Committee in June, before clearing the full Assembly in a 61-3 vote, also in June. It passed the Senate Insurance Committee unanimously Aug. 4 and is set to be considered by the Senate Appropriations Committee Aug. 19.

That certainly seems like a lot of democratic deliberation, not to mention overwhelming legislative consensus. But not enough for Mr. Rosenfield, who charges that the bills are “being fast-tracked to detour legislative scrutiny” because they have not been referred to the Senate Judiciary Committee for constitutional review.

The nature of the review Rosenfield is seeking is for the Judiciary panel to examine whether the bills “further the purposes” of the initiative. Because, alas, under California law, attaining a super-majority in both chambers is not sufficient. Any amendments to Prop 103 also must perpetuate the goals of Prop 103.

To be clear, with or without a referral to the Judiciary Committee, a determination on whether the legislation furthers Prop 103’s goals will ultimately be up to the courts to decide. In fact, Rosenfield called such a challenge “inevitable” while asking Senate Pro Tem Toni Atkins to delay a floor vote on the measure until 2021, when a new Legislature will be seated. To do otherwise, Rosenfield writes, is to “allow democracy to be another casualty of the virus.”

It is particularly rich to hear Rosenfield raise concerns about an undemocratic process, given how low a regard he otherwise seems to hold the democratic process of lawmaking. For example, among the reasons Rosenfield knows legal challenges to A.B. 2167 and S.B. 292 are inevitable is that his group will almost certainly be leading them. The fact that passage means both bills would have achieved support from a super-majority of the people’s representatives does not matter one bit in that calculus.

Among the other concerns Rosenfield raises in his Bee piece is that the bills are sponsored by Assembly Insurance Committee Chair Tom Daly (D-Anaheim) and Senate Insurance Committee Chair Susan Rubio, (D-West Covina), respectively. Supporters of the democratic process might think that those legislators who have been chosen by their fellow members to lead panels devoted to the subject of insurance are, in fact, the best-situated to lead legislative efforts regarding insurance law. But in Rosenfield’s mind, Rubio and Daly being chairs of the relevant committees counts as a demerit.

And finally, there is the matter that obviously most grinds Rosenfield’s gears. The Senate Insurance Committee did not let him testify for as long as he wanted to. As he writes in the Bee:

Lawmakers should have been allowed to hear the views of the author of Prop. 103 on controversial legislation that would nullify portions of the 1988 initiative. However, I was given exactly 20 seconds to explain why members should oppose AB 2167.

Lawmakers, of course, were allowed to hear Rosenfield’s views. He also was free to submit those views in writing, as we at R Street did. On the other side of the Legislature, a spokeswoman for Assembly Speaker Anthony Rendon told Politico in response to Rosenfield’s complaints that her chamber “has offered an unprecedented level of accessibility to our committee hearings through phone testimony, in-person testimony, and remote testimony stations placed across the state.”

The evidence mounts that it is not “democracy” that Rosenfield seeks. Only a process that revolves entirely around him will do.

It bears remembering at this point how it is that Prop 103 became law. The measure, which was highlighted by a proposal to roll back auto insurance rates by 20 percent, was one of four insurance-related initiatives presented to California voters on the November 1988 ballot. The voters in 1988 did their best to evaluate that series of complex, multistep initiatives. In the end, Prop 103 was the only one to pass. It did so by the slimmest of margins, earning 51 percent of the vote.

But here we are, 32 years later, facing a set of public policy challenges that would have been completely alien to voters in 1988, few of whom had even the term “global warming.” Think on what it means that there is effectively no legislative path, not even with two-thirds majorities of the people’s representatives in both chambers of the Legislature, to undo the decision made by that narrow majority of voters more than three decades ago.

Does that sound like democracy to you?

About R.J. Lehmann

Lehmann is co-founder of the R Street Institute in Washington, D.C. where he serves as director, Finance, Insurance & Trade, and is a senior fellow. He can be reached at rlehmann@rstreet.org. More from R.J. Lehmann

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