The Rule That Makes California Different

California regulates auto insurance rates more tightly than most states, and almost all of it traces to one 1988 ballot measure. If you have ever wondered why a national carrier's California pricing behaves differently from its pricing elsewhere, this is why.

Prior approval

Proposition 103 established that insurers must have rate changes approved before using them, rather than filing and implementing them. A company that wants to change what it charges makes an application to the Insurance Commissioner, supports it with data, and waits. That is a slower and more public process than in filing states, and it is the central mechanism.

An elected commissioner

The measure also made the Insurance Commissioner an elected office. Whatever you think of that arrangement, it means the person approving rates answers to voters rather than to an appointing authority.

The mandatory rating factors

Insurance Code section 1861.02 requires that your driving record, your annual mileage and your years of driving experience be the primary factors in determining an automobile rate — in that order of importance. Other factors may be used only where the Commissioner has approved them, and they must have less weight than the three the statute names. This is genuinely unusual: in most states, the ordering of rating factors is the insurer's business.

Public participation

The process allows intervenors to participate in rate proceedings and challenge an insurer's application. It is one reason California rate filings take as long as they do, and one reason the record behind a rate change is public.

What it means for you, practically

• Your rate cannot change mid-term because the company felt like it — approved rates apply at renewal.
• Two carriers can disagree wildly about the same driver and both be operating within approved plans, which is exactly why comparing is worth doing.
• Factors that carry weight in other states do not necessarily carry weight here, so advice written for a national audience often does not apply to you.

Where to read more

The Department of Insurance publishes material on the rate approval process and on the factors it permits. It is the authoritative source, and it is more readable than you would expect.

If you want to know where you land inside all of that, the practical answer is a comparison across several carriers — the rules are the same for all of them and the results are not.