Prior approval rate regulation

In May 2023, State Farm General stopped accepting new homeowners applications in California. The state runs under Proposition 103, passed by ballot initiative in November 1988, which requires prior approval from the insurance commissioner for any property and casualty rate change. Under prior approval the carrier files a supporting rate filing and waits for a decision, whereas in file-and-use or use-and-file states the rate goes into effect before any review. The system guards against excessive rates and unfair discrimination, and it stays neutral as long as the underlying risk is stable. When loss experience shifts faster than the process, a denied increase leaves the carrier unable to price the exposure, and it stops writing it. A regime built to keep coverage affordable ends up making it unavailable. The second effect works through accepted methods. California required the wildfire load to rest on an average of past losses and barred forward-looking catastrophe models, so a deteriorating trend could not be priced before it showed up in the losses. Regulations adopted in 2024 under the commissioner's sustainable insurance strategy opened the door to those models, in exchange for commitments to write in wildfire-exposed areas.