Los Angeles, CA — Consumer Watchdog said legislation sponsored by Insurance Commissioner Ricardo Lara and scheduled for a vote Wednesday would needlessly expose California taxpayers to the same kind of complex and risky financial instruments that led to the 2008 financial crisis.
The bill would allow the state to purchase insurance and other financial products with none of the usual state oversight, including insurance regulation by Commissioner Lara’s own Department of Insurance and procurement rules at the Department of General Services.
The state Department of Finance says the bill, SB 290 (Dodd), is not needed as the Governor already has broad authority under the California Emergency Services Act to purchase insurance or other financial instruments to hedge against the possibility of a costly wildfire season.
Read Consumer Watchdog’s letter opposing SB 290: https://consumerwatchdog.org/sites/default/files/2019-08/LtrDoddSB290.pdf
Read the Department of Finance analysis opposing SB 290: https://consumerwatchdog.org/sites/default/files/2019-08/SB-290.pdf
“The insurance commissioner is charged with implementing California’s rigorous consumer protection laws to ensure insurance sales in the state are financially sound, not with creating insurance industry dream products that would be exempt from all regulation,” said Consumer Watchdog.
“SB 290 unreasonably circumvents existing governmental oversight and consumer protections with the promise that a consultation with the insurance commissioner is enough to guarantee their legitimacy. The commissioner, unfortunately, has demonstrated in a recent speech a lack of knowledge on insurance topics, fealty to the insurance companies and a willingness to ‘get creative’ that could prove disastrous for taxpayers,” wrote Consumer Watchdog in a letter opposing the bill. “Taxpayer dollars are best spent on fire prevention and mitigation, not on complicated financial instruments by for-profit insurance companies that will try to take advantage of the state in highly ‘creative’ ways.”
In a closed-door speech to insurance industry lawyers two weeks ago, Lara said: “So, I want to thank you for being one of the first organizations to support SB 290 and look forward to continue to partner with you to insure the bill moves forward to the Governor’s desk and ultimately to obtain his signature. I’m ready to get creative, just like all of you have been for so many years, and now you have somebody that’s receptive to that in the Department.”
Watch the speech: https://www.youtube.com/watch?v=MsvBWrRcaGQ
At the February 14 press conference announcing the introduction of SB 290, Insurance Commissioner Lara said, “I’m engaging in the insurance industry to create new innovative approaches. We need to be open to new products and models that reduce the risk for our communities and our budget.”
Watch the press conference: https://www.youtube.com/watch?v=idDJxZ1BnEw
“Creativity in the hands of the insurance companies means higher premiums for the policyholders – in this case the state’s taxpayers,” wrote Consumer Watchdog.
“Notably [the bill] allows for a continuous appropriation to pay for insurance that amounts to a blank check for the government. The complicated financial instruments that will be created – including reinsurance, insurance linked securities (ILS), Catastrophe bonds (cat bonds) or other related alternative risk-transfer products — are likely to stump even the most well-meaning governors and executive agency staff,” wrote the group.
SB 290 is scheduled to be heard in the Assembly Appropriations Committee at 9 am on Wednesday the 14th. The committee analysis says the bill “is not based on an analysis of the necessity or benefit of reinsurance for the state,” that it allows for the purchase of reinsurance “without robust reporting, analytical or oversight requirements,” and that, “it is not necessary to grant continuous appropriation authority with minimal oversight for such expenditures.”
Read the Appropriations Committee analysis: https://consumerwatchdog.org/sites/default/files/2019-08/Assembly%20Committee%20on%20Appropriations%208%3A13.pdf