The envelope please… And the 16th California Golden Fleece® Award goes to…

But first, some context and history.

California is in the throes of a self-imposed insurance crisis, with homeowners facing selling because they can’t get insurance. And elected politicians and appointed government officials don’t seem to be addressing this crisis with any sense of urgency.

As the Independent Institute reports, “The insurance regulatory framework in California has created a situation in which the insurance premiums that companies collect do not reflect the risk that they are exposed to, causing insurers to
flee.

“For this reason, the Independent Institute is awarding its sixteenth California Golden Fleece® Award to Harvey Rosenfield (the author of Prop. 103 and the founder of consumerwatchdog.org), Proposition 103 (1988), the California Department of Insurance, and California Insurance Commissioners.”

“This report examines the regulatory failures that have driven the chaotic collapse of the state’s property insurance markets and offers recommendations on the reforms necessary to create a functioning and sustainable market.”

The Independent Institute bestows its California Golden Fleece® Award on a state or local government spending program, tax, or regulation that fleeces California taxpayers, consumers, or businesses.

The late U.S. Sen. William Proxmire used to famously issue Golden Fleece Awards (1975–1988) to public officials he believed were squandering public money. Golden Fleece Awards are bestowed upon public officials, governmental agencies and organizations for their “wasteful, ridiculous, or ironic use of taxpayers’ money.”

This year, the Golden Fleece Award, “Why California’s Homeowners’ Insurance Market Collapsed—and How to Fix It,” by Kristian Fors, addresses California’s collapsed insurance market, but also how to fix it:

Since 2022, seven of the twelve largest insurance companies in California have limited new policies in the state. The state’s dire straits have been amplified by the recent devastating wildfires in Los Angeles, which destroyed billions of dollars in structures and took more than two dozen lives.

The root cause of California’s current crisis lies in a combination of increasingly destructive wildfires and a regulatory framework that is both inefficient and inadequate in addressing the growing risks. Proposition 103 requires that all rate changes on property and casualty insurance lines be approved by the California insurance commissioner before being implemented, a process that can take months, resulting in significant rate suppression. Furthermore, prohibitions on using forward-looking “catastrophe models” for assessing wildfire risks have further compounded the exposure faced by insurance companies.

Prior to passage of Prop. 103 in 1988, California was considered an “‘open competition’ state in which competition regulated the [insurance] marketplace.” The proposition rolled back the then-current insurance rates by 20 percent and established strict requirements on rate setting.

As former State Senator Ted Gaines reported for the Globe last year, Proposition 103 governs our state’s property and casualty insurance industry. Under Prop. 103, the Insurance Commissioner must approve rate increase requests from insurers before they are implemented.

He explained that “rate increase applications are languishing in the Department of Insurance (DOI) for up to two years. Instead of losing money while waiting for rate increases, insurers are pulling out of the state with astonishing speed. It’s likely that everyone reading this knows someone who has been non-renewed by an insurer and unable to find the needed fire insurance required by lenders.”

This is pushing Californians to the California FAIR Plan, which is writing the highest-risk policies in California, but it is woefully underfunded, with only a few billion in assets and several hundred billion in liabilities, Gaines reported.

The real responsibility for California’s high insurance premiums lies in state politicians’ and the governor’s policy decisions and bad laws. Most insurers say because of California’s high cost to rebuild, they can’t keep premiums artificially low any longer.

“Proposition 103 created a system that doesn’t allow fair market pricing for insurance companies,” said Kristian Fors, Independent Institute Research Fellow and Director of the California Golden® Fleece Awards. “The insurance rates permitted in California do not reflect the level of risk that insurance companies are exposed to.”

The Independent Institute noted that “even before the wildfires which ravaged southern California in January this year, homeowners’ policies were being cancelled by insurers, fleeing the market because they were unable to price policies to reflect their own risks.”

Of particular interest, the report addresses insurance companies’ “mitigation” steps, which as State Farm policyholders know, are daunting and horrifically expensive.

From the report:

Restricted insurance rates also distort homeowners’ incentives to make their homes more fire-resistant (“home hardening”) in high-risk areas. In 2022, California Insurance Commissioner Ricardo Lara mandated that homeowners be given discounts if they engage in certain risk-mitigation practices (10 CA Code of Regs 2644.9 [2025]). The discounts vary based on each insurer and are itemized in company rate filings.

State Farm policyholders, for example, can reduce their premiums by roughly 10 percent if they implement all twelve mitigation steps outlined in the regulation and are certified compliant by a nonprofit. While 10 percent may sound substantial, these discounts are minimal compared with the cost of fire mitigation measures. For example, the State Farm discount for fire-resistant windows, which can cost more than $700 per window, is a mere 0.1 percent discount, or a $14 reduction to a $13,800 annual insurance premium. To retrofit a house with the highest levels of fire protection can cost upwards of $100,000.

Fire mitigation discounts have been undermined by the fact that rates in California are not actuarially sound to begin with, meaning that homeowners in high-risk areas have not had a real financial incentive to engage in good practices because they were not bearing the full financial brunt of the risk that they expose insurance providers to.

The report explains in detail how California arrived in this very unstable place, and how and why insurance rate change applications take such considerable processing time. The report explains that rate change applications “limit insurance companies’ ability to plan adequately and respond to changing market conditions.”

“Proposition 103 was intended to guarantee that the CA Dept. Insurance and the commissioner process rate applications in a timely manner. Rate change applications, unless challenged, are supposed to be approved within sixty days of the application’s public notice, but the reality of the rate change process is much different. According to the International Center for Law & Economics, the ‘deemer’ clause has essentially been rendered moot because the CA Dept. Insurance often requests that insurance companies waive this sixty-day timeline, a request for which it has significant leverage.”

The report provides reforms and solutions that can and will work:

1. Eliminate Restrictions on Rate Setting and Repeal Proposition 103

2. Wildfire Policy Reforms

3. Housing Reforms

Fors’ conclusions are interesting, and in particular, “the failure of California’s homeowners’ insurance market is a cautionary tale for the rest of the nation. Regulation, even when well-intended, has the potential to devastate markets by setting into motion harmful consequences, often hidden.”

“California undermined the fundamental workings and incentives of its homeowners’ insurance market, and its residents are suffering the consequences.”

Here is the full report by Kristian Fors, and linked here:

Why California’s Home Insurance Market Collapsed—and How to Fix It