If you own a car or home in California, Proposition 103 already affects how much you pay for insurance — even if you've never heard of it. Passed by voters in 1988, the law requires the state’s insurance commissioner to approve any California home insurance or auto insurance rate change before an insurer can charge it. This prior approval process is meant to protect homeowners and drivers from sudden, arbitrary rate hikes and keep the insurance market competitive.
What is California's Proposition 103?
Proposition 103 is now codified in California's Insurance Code. Under the law, insurance companies selling personal auto, homeowners, and other property/casualty coverage in California must file any rate change with the California Department of Insurance and get it approved before charging customers the new rate.
The law also made the California insurance commissioner an elected statewide office, giving voters direct authority over the state's primary insurance regulator. It established an intervenor system as well, which allows any person to participate in insurance rate proceedings and challenge proposed rate changes before they're approved.
How Proposition 103 affects your car insurance
Proposition 103 places restrictions on the factors insurance companies can use to set personal auto insurance rates (also known as premiums) in California. All insurers must weigh three factors when pricing policies:
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The insured’s driving safety record
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The number of miles the insured drives annually
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The number of years of driving experience the insured has
Insurers may also use other factors with “a substantial relationship to the risk of loss.” In addition to the mandatory rating factors listed above, insurers in California can use the following optional factors to set premiums:
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Type of vehicle you drive
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Vehicle’s performance capabilities, including those added by alterations or modifications
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Vehicle characteristics, such as engine size, safety devices, repairability, and theft deterrent systems
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Vehicle use like pleasure, commuting, or business
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Percentage use of the vehicle (how much of the car's driving is done by the driver whose record is used to set that car's rate, versus other household members)
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Whether your household has multiple vehicles
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Academic standing if enrolled in school
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Completion of driver’s training course(s)
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Marital status
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How long you've been continuously insured without a gap in coverage
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Smoker or nonsmoker status
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Secondary driver characteristics, including their driving record, years licensed, marital status, driver training, and academic status
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Multiple policies held with the same insurer
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Relative claims frequency in your ZIP code
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Relative claims severity in your ZIP code
What rating factors can't affect your California auto insurance premium?
California doesn't allow insurers to use credit information to set car insurance rates. It also limits telematics use to verifying mileage, rather than scoring driving behavior — like hard braking or phone use — to set individualized "pay-how-you-drive" rates the way some other states permit. The state protects drivers from rate surcharges after accidents where they weren't principally at fault, as well.
What is California's good driver discount?
Insurers must offer a good driver discount of at least 20% to drivers who have been licensed for at least three years, have no more than one violation point in the past three years, and weren't principally at fault for an accident causing bodily injury or death.
How Proposition 103 affects your homeowners insurance
Proposition 103 requires insurance companies to obtain prior state approval for changes to home insurance rates. This has kept California insurance prices among the lowest in the country, though a recent survey revealed that 60% of California homeowners still struggle to find affordable coverage.
Proposition 103 also restricts home insurance cancellations to four permissible reasons:
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Nonpayment of premiums
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Fraud
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Material misrepresentation (providing false information)
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Physical changes to a property that substantially increase any hazard insured against in the policy
However, nonrenewal is allowed for reasons beyond these four factors, allowing California insurers to exit high-risk markets.
As wildfire risk has increased sharply in California, so too has the financial risk for homeowners insurance companies in the state — especially in recent years. Proposition 103's prior approval requirement has slowed the market response, protecting homeowners from significant premium spikes. However, it also prevents insurance companies from scaling rates to meet the increased cost of claims in wildfire-prone areas. This has led some insurance providers to reduce business across California to limit their exposure to severe wildfire risk.
As a result, more homeowners have turned to the California FAIR Plan, the state's insurer of last resort for those who can't find coverage from a private company. Because the FAIR Plan is not subject to Proposition 103, it isn't bound by the same rate-approval process — which is part of why it's grown rapidly as private insurers pull back from high-risk areas.
The consumer intervenor process
Under Proposition 103, a proposed rate increase of more than 7% on personal auto or homeowners insurance triggers a mandatory public hearing before the California Department of Insurance. Consumer groups and individual citizens — known as intervenors — can petition to take part in these hearings and formally challenge the proposed increase. The department can approve or deny each petition.
If a petition is approved, the intervenor can recover costs related to the challenge from the insurance company, including attorney's fees.
One of California's most active intervenors is Consumer Watchdog, a public interest group founded in 1985 by Harvey Rosenfield, the author of Proposition 103.
Why Proposition 103 remains debated
Proposition 103 has carried controversy from the outset. The original 1988 ballot measure passed by a slim margin of 51.1% vs. 48.9%. Today, consumer advocates and insurance-industry voices disagree about Proposition 103’s overall impact on the California property and casualty insurance market.
Consumer advocate groups largely support Proposition 103, arguing that the initiative succeeded in its original goal of protecting California consumers from predatory, arbitrary, and discriminatory pricing. In particular, consumer groups such as the Consumer Federation of America point to the prior approval and public intervenor processes as vital protections against market abuses. Still, some consumers feel that Proposition 103 unfairly prevents consumers from benefiting from certain pricing relief measures, such as safe driving telematics programs that are widely available elsewhere in the nation.
Meanwhile, insurance industry leaders and some legal commentators point to Proposition 103 as an example of “overregulation” in the insurance market. Industry experts say that Proposition 103 has weakened the California insurance market and ultimately raised consumer costs rather than lowering them.
Wildfire risk presents a particularly pressing problem for these critics, who argue that Proposition 103 has compounded California’s home insurance crisis by preventing insurers from setting prices that appropriately reflect real-world risks.
Frequently asked questions
When did Prop 103 pass?
California voters approved Proposition 103 in a ballot initiative in November 1988.
What is Proposition 103 for good drivers?
California's Proposition 103 requires insurance companies to offer a 20% good driver discount to drivers who've been licensed for at least three years, have no more than one violation point in the past three years, and weren't principally at fault for an accident causing bodily injury or death.
Which insurance company has the most complaints in California?
The California Department of Insurance tracks justified consumer complaints for auto, home, and life insurance and publishes annual complaint ratios on its website. You can compare California insurers’ complaint numbers and ratios using these tools.
