On November 8, 1988, Californians passed the Insurance Rate Reduction and Reform Act, better known as Proposition 103. What follows below is the complete, original text of the ballot initiative.
NOTE: Changes made by the state Legislature and the Courts are noted in different colored-text (green for additions, red
for deletions). For the complete text noting the repeal of
then-existing laws (Section 7), please consult the 1988 California
General Election Voter Information Pamphlet or the Insurance Code at
your local law library.
Insurance Rate Reduction and Reform Act
Section 1. Findings and Declaration.
The People of California find and declare as follows:
Enormous increases in the cost of insurance have made it both unaffordable and unavailable to millions of Californians.
The existing laws inadequately protect consumers and allow insurance
companies to charge excessive, unjustified and arbitrary rates.
Therefore, the People of California declare that insurance reform
is necessary. First, property-casualty insurance rates shall be
immediately rolled back to what they were on November 8, 1987, and
reduced no less than an additional 20%. Second, automobile insurance
rates shall be determined primarily by a driver’s safety record and
mileage driven. Third, insurance rates shall be maintained at fair
levels by requiring insurers to justify all future increases. Finally,
the state Insurance Commissioner
shall be elected. Insurance companies shall pay a fee to cover the
costs of administering these new laws so that this reform will cost
Section 2: Purpose.
The purpose of this chapter is to protect consumers from arbitrary
insurance rates and practices, to encourage a competitive insurance
marketplace, to provide for an accountable Insurance Commissioner, and to ensure that insurance is fair, available, and affordable for all Californians.
Section 3: Reduction and Control of Insurance Rates.
Article 10, commencing with Section 1861.01 is added to Chapter 9 of Part 2 of Division 1 of the Insurance Code to read:
Insurance Rate Rollback
1861.01.(a) For any coverage for a policy for automobile and any other
form of insurance subject to this chapter issued or renewed on or after
November 8, 1988, every insurer shall reduce its charges to levels
which are at least 20% less than the charges for the same coverage
which were in effect on November 8, 1987.
(b) Between November 8, 1988, and November 8, 1989, rates and
premiums reduced pursuant to subdivision (a) may be only increased if
the commissioner finds, after a hearing, that an insurer is
substantially threatened with insolvency.
[The California Supreme
Court unanimously upheld the rollback but struck down the
“substantially threatened with insolvency” standard. The court
substituted a “fair rate of return” constitutional standard, leaving it
to the Commissioner to determine on a company-by-company basis, through
the individual rollback exemption hearings, whether the rate rollback
would deprive an insurer of a fair rate of return.]
(c) Commencing November 8, 1989, insurance rates subject to this
chapter must be approved by the commissioner prior to their use.
(d) For those who apply for an automobile insurance policy for the
first time on or after November 8, 1988, the rate shall be 20% less
than the rate which was in effect on November 8, 1987, for similarly
(e) Any separate affiliate of an insurer, established on or after
November 8, 1987, shall be subject to the provisions of this section
and shall reduce its charges to levels which are at least 20% less than
the insurer’s charges in effect on that date.
Automobile Rates & Good Driver Discount Plan
1861.02. (a) Rates and premiums for an automobile insurance policy,
as described in subdivision (a) of Section 660, shall be determined by
application of the following factors in decreasing order of importance:
(1) The insured’s driving safety record.
(2) The number of miles he or she drives annually.
(3) The number of years of driving experience the insured has had.
(4) Those other factors that the commissioner may adopt by regulation
and that have a substantial relationship to the risk of loss. The
regulations shall set forth the respective weight to be given each
factor in determining automobile rates and premiums. Notwithstanding
any other provision of law, the use of any criterion without approval
shall constitute unfair discrimination.
[Insurance Code Section 1861.02(b) was amended by the state Legislature.
Amendments are noted in green.]
(b) (1) Every person who (A) has been licensed
to drive a motor vehicle for the previous three years and (B) has had,
during that period, not more than one conviction for a moving violation
which has not eventually been dismissedEvery person who meets the criteria of Section 1861.025
shall be qualified to purchase a Good Driver Discount policy from the
insurer of his or her choice.
An insurer shall not refuse to offer and sell a Good Driver Discount
policy to any person who meets the standards of this subdivision.
(2) The rate charged for a Good Driver Discount policy shall comply
with subdivision (a) and shall be at least 20% below the rate the
insured would otherwise have been charged for the same coverage. Rates
for Good Driver Discount policies shall be approved pursuant to this
(3) (A) This subdivision shall not prevent a
reciprocal insurer, organized prior to November 8, 1988, by a motor
club holding a certificate of authority under Chapter 2 (commencing
with Section 12160) of Part 5 of Division 2, and which requires
membership in the motor club as a condition precedent to applying for
insurance from requiring membership in the motor club as a condition
precedent to obtaining insurance described in this subdivision.
(B) This subdivision shall not prevent an insurer which requires
membership in a specified voluntary, nonprofit organization, which was
in existence prior to November 8, 1988, as a condition precedent to
applying for insurance issued to or through those membership groups,
including franchise groups, from requiring such membership as a
condition to applying for the coverage offered to members of the group,
provided that it or an affiliate also offers and sells coverage to
those who are not members of those membership groups.
(C) However, all of the following conditions shall be applicable to the insurance authorized by subparagraphs (A) and (B):
(i) Membership, if conditioned, is conditioned only on
timely payment of membership dues and other bona fide criteria not
based upon driving record or insurance, provided that membership in a
motor club may not be based on residence in any area within the state.
(ii) Membership dues are paid solely for and in consideration
of the membership and membership benefits and bear a reasonable
relationship to the benefits provided. The amount of the dues shall not
depend on whether the member purchases insurance offered by the
membership organization. None of those membership dues or any portion
thereof shall be transferred by the membership organization to the
insurer, or any affiliate of the insurer, attorney-in-fact, subsidiary,
or holding company thereof, provided that this provision shall not
prevent any bona fide transaction between the membership organization
and those entities.
(iii) Membership provides bona fide services or benefits in
addition to the right to apply for insurance. Those services shall be
reasonably available to all members within each class of membership.
Any insurer that violates clause (i), (ii), or (iii) shall be subject to the penalties set forth in Section 1861.14.
(c) The absence of prior automobile insurance coverage, in and of
itself, shall not be a criterion for determining eligibility for a Good
Driver Discount policy, or generally for automobile rates, premiums, or
[Insurance Code Section 1861.02(d), noted in green below, was added to the Insurance Code by the state Legislature. It was NOT part of the original text of Proposition 103.]
(d) An insurer may refuse to sell a Good Driver
Discount policy insuring a motorcycle unless all named insureds have
been licensed to drive a motorcycle for the previous three years.
(d)(e) This section
shall become operative on November 8, 1989. The commissioner shall
adopt regulations implementing this section and insurers may submit
applications pursuant to this article which comply with such those regulations prior to that date, provided that no such application shall be approved prior to that date.
[Insurance Code Section 1861.025, noted in green below, was added to the Insurance Code by the state Legislature. It was NOT part of the original text of Proposition 103.]
1861.025. A person is qualified to purchase a Good Driver Discount policy if he or she meets all of the following criteria:
(a) He or she has been licensed to drive a motor vehicle for the previous three years.
(b) During the previous three years, he or she has not done any of the following:
(1) Had more than one violation point count determined as provided by
subdivision (a), (b), (c), (d), (e), (g), or (h) of Section 12810 of
the Vehicle Code, but subject to the following modifications:
A. For the purposes of this
section, the driver of a motor vehicle involved in an accident for
which he or she was principally at fault that resulted only in damage
to property shall receive one violation point count, in addition to any
other violation points which may be imposed for this accident.
B. If under Section 488 or 488.5 an insurer is prohibited from
increasing the premium on a policy on account of a violation, that
violation shall not be included in determining the point count of the
C. If a violation is required to be reported under Section 1816 of
the Vehicle Code, or under Section 784 of the Welfare and Institutions
Code, or any other provision requiring the reporting of a violation by
a minor, the violation shall be included for the purposes of this
section in determining the point count in the same manner as is
applicable to adult violations.
(2) Had more than one dismissal pursuant to Section 1803.5 of the
Vehicle Code that was not made confidential pursuant to Section 1808.7
of the Vehicle Code, in the 36-month period for violations that would
have resulted in the imposition of more than one violation point count
under paragraph (1) if the complaint had not been dismissed.
(3) Was the driver of a motor vehicle involved in an accident that
resulted in bodily injury or in the death of any person and was
principally at fault. The commissioner shall adopt regulations setting
guidelines to be used by insurers for the their determination of fault
for the purposes of this paragraph and paragraph (1) of subdivision
(c) During the period commencing on January 1, 1999, or the date 10
years prior to the date of application for the issuance or renewal of
the Good Driver Discount policy, whichever is later, and ending on the
date of the application for the issuance or renewal of the Good Driver
Discount policy, he or she has not been convicted of a violation of
Section 23140, 23152, or 23153 of the Vehicle Code, a felony violation
of Section 23550 or 23566, or former Section 23175 or a violation of
Section 191.5 or *** subdivision (a) of Section 192.5 of the Penal Code.
(d) Any person who claims that he or she meets the criteria of
subdivisions (a), (b), and (c) based entirely or partially on a
driver’s license and driving experience acquired anywhere other than in
the United States or Canada is rebuttably presumed to be qualified to
purchase a Good Driver Discount policy if he or she has been licensed
to drive in the United States or Canada for at least the previous 18
months and meets the criteria of subdivisions (a), (b), and (c) for
Prohibition on Unfair Insurance Practices
1861.03 (a) The business of insurance shall be subject to the laws of
California applicable to any other business, including, but not limited
to, the Unruh Civil Rights Act (Sections 51 through 53, inclusive, of
the Civil Code), and the antitrust and unfair business practices laws
(Parts 2 (commencing with Section 16600) and 3 (commencing with Section
17500) of Division 7 of the Business and Professions Code).
[Insurance Code Section 1861.03(b) was amended by the state Legislature. Additions are noted in green, deletions in red.]
(b) Nothing in this section shall be construed to prohibit (1) any
agreement to collect, compile and disseminate historical data on paid
claims or reserves for reported claims, provided such data is
contemporaneously transmitted to the commissioner, or (2) participation in any joint arrangement established by statute or the commissioner to assure availability of insurance.,
(3) any agent or broker, representing one or more insurers, from
obtaining from any insurer it represents information relative to the
premium for any policy or risk to be underwritten by that insurer, (4)
any agent or broker from disclosing to an insurer it represents any
quoted rate or charge offered by another insurer represented by that
agent or broker for the purpose of negotiating a lower rate, charge, or
term from the insurer to whom the disclosure is made, or (5) any
agents, brokers, or insurers from utilizing or participating with
multiple insurers or reinsurers for underwriting a single risk or group
(c) (1)Notwithstanding any other provision of law, a notice of
cancellation or non-renewal of a policy for automobile insurance shall
be effective only if it is based on one or more of the following
(A) non-payment of premium;
(B) fraud or material misrepresentation affecting the policy or insured;
(C) a substantial increase in the hazard insured against.
[Insurance Code Section 1861.03(c)(2), noted in green below, was added to the Insurance Code by the state Legislature. It was NOT part of the original text of Proposition 103.]
(2) This subdivision shall not prevent a reciprocal
insurer, organized prior to November 8, 1988, by a motor club holding a
certificate of authority under Chapter 2 (commencing with Section
12160) of Part 5 of Division 2, and which requires membership in the
motor club as a condition precedent to applying for insurance, from
issuing an effective notice of nonrenewal based solely on the failure
of the insured to maintain membership in the motor club. This
subdivision shall also not prevent an insurer which issues private
passenger automobile coverage to members of groups that were in
existence prior to November 8, 1988, whether membership, franchise, or
otherwise, and to those who are not members of groups from issuing an
effective notice of nonrenewal for coverage provided to the insured as
a member of the group based solely on the failure of the insured to
maintain that membership if (i) the insurer offers to renew the
coverage to the insured on a nongroup basis, or (ii) to transfer the
coverage to an affiliated insurer. The rates charged by the insurer or
affiliated insurer shall have been adopted pursuant to this article.
However, all of the following conditions shall be applicable to that
(A) Membership, if conditioned, is conditioned only on timely
payment of membership dues and other bona fide criteria not based upon
driving record or insurance, provided that membership in a motor club
may not be based on residence in any area within the state.
(B) Membership dues are paid solely for and in consideration of the
membership and membership benefits and bear a reasonable relationship
to the benefits provided. The amount of the dues shall not depend on
whether the member purchases insurance offered by the membership
organization. None of those membership dues or any portion thereof
shall be transferred by the membership organization to the insurer, or
any affiliate of the insurer, attorney-in-fact, subsidiary, or holding
company thereof, provided that this provision shall not prevent any
bona fide transaction between the membership organization and those
(C) Membership provides bona fide services or benefits in addition
to the right to apply for insurance. Those services shall be reasonably
available to all members within each class of membership.
Any insurer that violates subparagraphs (A), (B), or (C) shall be subject to the penalties set forth in Section 1861.14.
Full Disclosure of Insurance Information
1861.04. (a) Upon request, and for a reasonable fee to cover costs,
the commissioner shall provide consumers with a comparison of the rate
in effect for each personal line of insurance for every insurer.
[Insurance Code Section 1861.05(c) was amended by the state Legislature. Additions are noted in green.]
Approval of Insurance Rates
1861.05. (a) No rate shall be approved or remain in effect which is
excessive, inadequate, unfairly discriminatory or otherwise in
violation of this chapter. In considering whether a rate is excessive,
inadequate or unfairly discriminatory, no consideration shall be given
to the degree of competition and the commissioner shall consider
whether the rate mathematically reflects the insurance company’s
(b) Every insurer which desires to change any rate shall file a
complete rate application with the commissioner. A complete rate
application shall include all data referred to in Sections 1857.7,
1857.9, 1857.15, and 1864 and such other information as the
commissioner may require. The applicant shall have the burden of
proving that the requested rate change is justified and meets the
requirements of this article.
(c) The commissioner shall notify the public of any application by
an insurer for a rate change. The application shall be deemed approved
sixty days after public notice unless (1) a consumer or his or her
representative requests a hearing within forty-five days of public
notice and the commissioner grants the hearing, or determines not to
grant the hearing and issues written findings in support of that
decision, or (2) the commissioner on his or her own motion determines
to hold a hearing, or (3) the proposed rate adjustment exceeds 7% of
the then applicable rate for personal lines or 15% for commercial
lines, in which case the commissioner must hold a hearing upon a timely
request. In any event, a rate change application shall be
deemed approved 180 days after the rate application is received by the
commissioner (A) unless that application has been disapproved by a
final order of the commissioner subsequent to a hearing, or (B)
extraordinary circumstances exist. For purposes of this section,
“received” means the date delivered to the department.
(d) For purposes of this section, extraordinary circumstances include the following:
(1) Rate change application hearings commenced during the 180-day
period provided by subdivision (c). If a hearing is commenced during
the 180-day period, the rate change application shall be deemed
approved upon expiration of the 180-day period or 60 days after the
close of the record of the hearing, whichever is later, unless
disapproved prior to that date.
(2) Rate change applications that are not approved or disapproved
within the 180-day period provided by subdivision (c) as a result of a
judicial proceeding directly involving the application and initiated by
the applicant or an intervenor. During the pendency of the judicial
proceedings, the 180-day period is tolled, except that in no event
shall the commissioner have less than 30 days after conclusion of the
judicial proceedings to approve or disapprove the application.
Notwithstanding any other provision of law, nothing shall preclude the
commissioner from disapproving an application
without a hearing if a stay is in effect barring the commissioner from holding a hearing within the 180-day period.
(3) The hearing has been continued pursuant to Section 11524 of the
Government Code. The 180-day period provided by subdivision (c) shall
be tolled during any period in which a hearing is continued pursuant to
Section 11524 of the Government Code. A continuance pursuant to Section
11524 of the Government Code shall be decided on a case by case basis.
If the hearing is commenced or continued during the 180-day period, the
rate change application shall be deemed approved upon the expiration of
the 180-day period or 100 days after the case is submitted, whichever
is later, unless disapproved prior to that date.
[Insurance Code Section 1861.055, noted in green below, was added to the Insurance Code by the state Legislature. It was NOT part of the original text of Proposition 103.]
1861.055. (a) The commissioner shall adopt
regulations governing hearings required by subdivision (c) of Section
1861.05 on or before 120 days after the enactment of this section.
Those regulations shall, at the minimum, include timelines for
scheduling and commencing hearings, and procedures to prevent delays in
commencing or continuing hearings without good cause.
(b) The sole remedy for failure by the commissioner to adopt the
regulations required by subdivision (a) within the prescribed period or
to abide by those regulations once adopted shall be a writ of mandate
by any aggrieved party in a court of competent jurisdiction to compel
the commissioner to adopt those regulations, or commence or resume
(c) Nothing in this section shall preclude the commissioner from
commencing hearings required by subdivision (c) of Section 1861.05
prior to adopting the regulations required by this section.
(d) The administrative law judge shall render a decision within 30 days of the closing of the record in the proceeding.
1861.06. Public notice required by this article shall be made
through distribution to the news media and to any member of the public
who requests placement on a mailing list for that purpose.
1861.07. All information provided to the commissioner pursuant to
this article shall be available for public inspection, and the
provisions of Section 6254(d) of the Government Code and Section 1857.9
of the Insurance Code shall not apply thereto.
[Insurance Code Section 1861.08 was amended by the state Legislature. Additions are noted in green, deletions in red.]
1861.08. Hearings shall be conducted pursuant to Chapter 5
(commencing with Section 11500) of Part 1 of Division 3 of Title 2 of
the Government Code, except that:
(a) Hearings shall be conducted by administrative law judges for
purposes of Sections 11512 and 11517, chosen under Section 11502 or
appointed by the commissioner.
(b) Hearings are commenced by a filing of a notice in lieu of Sections 11503 and 11504.
(c) The commissioner shall adopt, amend or reject a decision only under Section 11517 (c) and (e)11518.5 and subdivisions (b), (c), and (e) of Section 11517 and solely on the basis of the record; as provided in Section 11425.50 of the Government Code.
(d) Section 11513.5 shall apply to the commissioner; Notwithstanding Section 11501, Section 11430.30 and subdivision (b) of Section 11430.70 shall not apply in these hearings.
(e) dDiscovery shall be liberally construed and disputes determined by the administrative law judge. as provided in Section 11507.7 of the Government Code.
1861.09. Judicial review shall be in accordance with Section
1858.6. For purposes of judicial review, a decision to hold a hearing
is not a final order or decision; however, a decision not to hold a
hearing is final.
1861.10. (a) Any person may initiate or intervene in any proceeding
permitted or established pursuant to this chapter, challenge any action
of the commissioner under this article, and enforce any provision of
(b) The commissioner or a court shall award reasonable advocacy and
witness fees and expenses to any person who demonstrates that (1) the
person represents the interests of consumers, and, (2) that he or she
has made a substantial contribution to the adoption of any order,
regulation or decision by the commissioner or a court. Where such
advocacy occurs in response to a rate application, the award shall be
paid by the applicant.
[The California Supreme Court invalidated Section 1861.10(c) of Proposition 103 in May 1989. The section is in red below.]
(c) (1) The commissioner shall require every insurer
to enclose notices in every policy or renewal premium bill informing
policyholders of the opportunity to join an independent, non- profit
corporation which shall advocate the interests of insurance consumers
in any forum. This organization shall be established by an interim
board of public members designated by the commissioner and operated by
individuals who are democratically elected from its membership. The
corporation shall proportionately reimburse insurers for any additional
costs incurred by insertion of the enclosure, except no postage shall
be charged for any enclosure weighing less than 1/3 of an ounce. (2)
The commissioner shall by regulation determine the content of the
enclosures and other procedures necessary for implementation of this
provision. The legislature shall make no appropriation for this
1861.11. In the event that the commissioner finds that (a) insurers
have substantially withdrawn from any insurance market covered by this
article, including insurance described by Section 660, and (b) a market
assistance plan would not be sufficient to make insurance available,
the commissioner shall establish a joint underwriting authority in the
manner set forth by Section 11891, without the prior creation of a
market assistance plan.
Group Insurance Plans
1861.12. Any insurer may issue any insurance coverage on a group
plan, without restriction as to the purpose of the group, occupation or
type of group. Group insurance rates shall not be considered to be
unfairly discriminatory, if they are averaged broadly among persons
insured under the group plan.
1861.13. This article shall apply to all insurance on risks or on operations in this state, except those listed in Section 1851.
Enforcement & Penalties
1861.14. Violations of this article shall be subject to the
penalties set forth in Section 1859.1. In addition to the other
penalties provided in this chapter, the commissioner may suspend or
revoke, in whole or in part, the certificate of authority of any
insurer which fails to comply with the provisions of this article.
Section 4. Elected Commissioner
Section 12900 is added to the Insurance Code to read:
(a) The commissioner shall be elected by the people in the same
time, place and manner and for the same term as the Governor not to
exceed two four-year terms.
Section 5. Insurance Company Filing Fees
Section 12979 is added to the Insurance Code to read:
Notwithstanding the provisions of Section 12978, the commissioner
shall establish a schedule of filing fees to be paid by insurers to
cover any administrative or operational costs arising from the
provisions of Article 10 (commencing with Section 1861.01) of Chapter 9
of Part 2 of Division 1.
Section 6. Transitional Adjustment of Gross Premiums Tax
Section 12202.1 is added to the Revenue & Taxation Code to read:
Notwithstanding the rate specified by Section 12202, the gross
premiums tax rate paid by insurers for any premiums collected between
November 8, 1988 and January 1, 1991 shall be adjusted by the Board of
Equalization in January of each year so that the gross premium tax
revenues collected for each prior calendar year shall be sufficient to
compensate for changes in such revenues, if any, including changes in
anticipated revenues, arising from this act. In calculating the
necessary adjustment, the Board of Equalization shall consider the
growth in premiums in the most recent three year period, and the impact
of general economic factors including, but not limited to, the
inflation and interest rates.
Section 7. Repeal of Existing Law
Sections 1643, 1850, 1850.1, 1850.2, 1850.3, 1852, 1853, 1853.6,
1853.7, 1857.5, 12900, Article 3 (commencing with Section 1854) of
Chapter 9 of Part 2 of Division 1, and Article 5 (commencing with
Section 750) of Chapter 1 of Part 2 of Division 1, of the Insurance
Code are repealed.
Section 8. Technical Matters
(a) This act shall be liberally construed and applied in order to fully promote its underlying purposes.
(b) The provisions of this act shall not be amended by the
Legislature except to further its purposes by a statute passed in each
house by roll call vote entered in the journal, two-thirds of the
membership concurring, or by a statute that becomes effective only when
approved by the electorate.
(c) If any provision of this act or the application thereof to any
person or circumstances is held invalid, that invalidity shall not
affect other provisions or applications of the act which can be given
effect without the invalid provision or application, and to this end
the provisions of this act are severable.