Next Commissioner Should Be Independent of Governor, Say Advocates
Sacramento — Consumer advocate Douglas Heller, of the Foundation for Taxpayer and Consumer Rights (FTCR), testified today before the Assembly Select Committee on the Office of the Insurance Commissioner. The Assembly is expected to confirm the nomination of Judge Harry Low to replace the former Insurance Commissioner, Chuck Quackenbush, who resigned July 10, 2000. Judge Low would serve as interim Insurance Commissioner until the next statewide election for that post in 2002.
Though not opposing the confirmation, FTCR is asking Judge Low to pledge his independence from insurance industry influence and from the Governor who appointed him. In addition to calling for a promise that he will never take campaign contributions from the insurance industry, FTCR points out that Judge Low is not a traditional appointee of the Governor, but has been nominated to replace an elected official. As such, he is statutorily obligated to act entirely independent of any other statewide official, including the Governor.
“To effectively restore the public’s confidence in the office [of Insurance Commissioner], there must be no real or perceived conflict of interest raised by insurance campaign contributions,” wrote Heller in a letter to President Pro Tem John Burton and in written testimony to the Assembly. “Because of Governor Davis’ prodigious fundraising from the insurance industry ($1.1 million dollars in 1999 alone), and to avoid the perception that industry contributions are indirectly influencing the new administration’s policies, Judge Low should guarantee that all policy and personnel decisions will be entirely independent of the Governor’s office.”
FTCR is also calling upon Judge Low to disclose his judgement record during seven years as a private arbitrator. According to sources, Judge Low has handled a number of insurance-related cases, but, because the records of arbitration proceedings are secret, the public cannot determine if Judge Low has exhibited fairness towards consumers with complaints against insurance companies. At a minimum, advocates suggest, Judge Low should disclose the number of cases he heard involving insurance companies and his dispositions (for the plaintiff or for the insurance company) in those cases.
“If Judge Low is to become a public official once again, he must disclose his record as a private judge,” said Heller. “The public must be assured that the next Commissioner has the resolve to stand up to the insurance industry; a resolve that that Mr. Quackenbush sorely lacked.”
Additionally, FTCR called for the following:
Finally, FTCR has offered the nominee recommendations regarding a series of specific issues that the Commissioner will immediately face, including earthquake insurance, auto insurance rates, the low-cost “Lifeline” insurance program and a much needed Policyholder Bill of Rights, which was recently unveiled by the state’s consumer protection organizations.
Heller concluded: “We believe that Judge Low must satisfactorily provide these assurances publicly if he is to restore California’s confidence in the Department of Insurance and be an effective, independent voice for consumers as the next Insurance Commissioner for California.”
August 22, 2000
Assembly Select Committee on the Office of the Insurance Commissioner
Honorable Robert Hertzberg, Chair
Confirmation Hearing for Judge Harry Low
Testimony of Douglas Heller, Consumer Advocate
Foundation for Taxpayer and Consumer Rights
Mr. Speaker, thank you for inviting us to provide testimony before your committee regarding the nominationÃƒÂŸ of Judge Harry Low as Interim Insurance Commissioner. My name is Douglas Heller. I am a consumer advocate with the Foundation for Taxpayer and Consumer Rights (FTCR), a non-profit, non-partisan organization, which has advocated on behalf of consumers and in the public interest since 1985. FTCR President, Harvey Rosenfield, drafted Proposition 103, which, among other things, made the post of Insurance Commissioner elected, rather than appointed. For the last twelve years we have monitored the implementation of the voter-approved initiative.
While we never anticipated the kind of behavior exhibited by Mr. Quackenbush, we believe that it is the very fact that he was an elected official that allowed the Legislature and the public to discover and root out the corruption which marred the Department and led to his resignation.
It is our belief that Judge Low, prior to his confirmation, must provide the public with assurances that, during his tenure as Commissioner, he will be an advocate for and accountable to the insurance consumers of the state. Judge Low must pledge to be free from the conflicts of interest that had plagued the Quackenbush administration. Only with these assurances and evidence of his independence should Judge Low be confirmed as the Interim Insurance Commissioner.
Judge Low Must Pledge to Be Independent of the Governor
Judge Low has been nominated to fill the vacancy created by Mr. Quackenbush. If confirmed, he will accept the responsibilities incumbent upon an elected statewide officeholder. Notwithstanding the nomination by the Governor, the Insurance Commissioner is statutorily obligated to be independent of any other statewide official, including the Governor. The statutory separation of powers mandates that administrative and policy decisions must be made by the Commissioner and should not be influenced by the Governor. To effectively restore the public’s confidence in the office, there must be no real or perceived conflict of interest raised by insurance industry campaign contributions. Because of Governor Davis’ prodigious fundraising from the insurance industry ($1.1 million in 1999 alone), and to avoid the perception that industry contributions are indirectly influencing the new administration’s policies, Judge Low should guarantee that all policy and personnel decisions will be entirely independent of the Governor’s office.
Judge Low Must Pledge to Accept No Insurance Industry Contributions
Judge Low must pledge that, should he choose to seek election to the post of Insurance Commissioner in 2002, he will not accept any campaign contributions, now or in the future, from any entity he regulates. The public firmly and, we believe, accurately blames much of the Quackenbush-Insurance scandal on the undue influence ceded by the former Insurance Commissioner to the insurance industry because insurance companies were his chief donors. Furthermore, the public believes that some of Mr. Quackenbush‘s misconduct was the result of quid pro quo agreements stemming from a specific contribution, while other aspects of the scandal were more broadly related to the fact that a vast majority of Mr. Quackenbush‘s campaign money came from insurers, agents and brokers. A pledge to refuse contributions from the entities Judge Low would regulate would begin the process of restoring public confidence in Department of Insurance.
Judge Low Must Make His Record as a Private Judge Public
The public must be assured that the next Insurance Commissioner has the resolve to stand up to the insurance industry and a record of fairness toward consumers who have disputes with insurance companies. Judge Low must demonstrate that, in his employment as a private judge with Judicial Arbitration Mediation Services, or JAMS, he did not have a record in which he ruled consistently in favor of the insurance industry or other corporations over the interests of consumers. While his public record as an appellate court judge does not indicate any conflicts, his role as a “private judge” is still unknown. At a minimum, Judge Low should disclose the number of cases he presided over involving insurance companies and the disposition of those cases (with the names redacted for confidentiality).
Judge Low Must Pledge to Remove Any Quackenbush Deputies Involved in the Scandal
The next Commissioner must promise the public that he will take action against the Deputy Commissioners and other members of DOI upper management complicit in the Quackenbush-Insurance scandal. The public awaits the assurance that those who worked with Mr. Quackenbush to implement his scheme will not remain in positions within the Department.
Calendar of Meetings
Judge Low should pledge that, if Commissioner, he will voluntarily publish a calendar of his meetings with insurance company executives and representatives.
Judge Low Must Re-open the Mishandled Northridge Investigations
If Judge Low is confirmed, he should immediately invalidate the market conduct examination settlements related to the Northridge earthquake, including those settlements with Farmers Insurance and Fireman’s Fund. He should then re-open the examination process and determine if the preliminary examinations conducted by the DOI can be completed or should be performed anew.
Judge Low Must Commit to Open Access to Insurer Examinations
Among the many factors that led to the Quackenbush-Insurance scandal, was the effort of Mr. Quackenbush to conceal the results of market conduct examinations conducted by his staff. The information contained in these statutorily mandated examinations exposed grave mishandling of earthquake victims’ claims. If these examination reports had been made public, Mr. Quackenbush would have been compelled to take appropriate actions against the companies rather than create private foundations with relatively small settlement payments from the examined companies . These examinations provide the public with crucial information about the quality of the product provided by insurance companies as well as information that may be important to policyholders, such as the Northridge quake survivors, who believe that they have been mistreated by an insurer.
Judge Low should commit to making all market conduct examinations readily available to the public and he should encourage the Legislature to mandate the publication of these exams so future Commissioners are bound by this sunshine provision.
The next Commissioner has a series of important issues before the Department that will need immediate attention.
The next Commissioner should determine the viability of the California Earthquake Authority (CEA). He or she must also address the fact that the number of earthquake insurance policyholders is in sharp decline, and that the CEA to this point has failed in its promise to provide homeowners with affordable and effective coverage.
Auto Insurance Rates
The next Commissioner should immediately drop the DOI appeal of a Superior Court ruling that invalidated Mr. Quackenbush‘s regulations regarding ZIP code based insurance rates. Mr. Quackenbush wasted taxpayer money in an attempt to undermine Prop 103‘s ban on ZIP code based insurance rates. The next Commissioner should drop that appeal, now slated for oral arguments before the Court of Appeal on September 12, 2000, and promulgate new, regulations that are consistent with the law.
The next Commissioner should issue “prior approval” regulations that will create standard procedures for increasing or decreasing insurance rates. According to state law enacted through Proposition 103, insurance rates cannot be “excessive, inadequate or unfairly discriminatory” and rate changes must be justified prior to the approval and implementation of the change. Under Mr. Quackenbush, the Department of Insurance has been operating without the necessary guidelines for approving rate changes; this leaves the public at a distinct disadvantage when there is a need to challenge a rate.
Low-Cost Auto Insurance Program
The next Commissioner should commit to fully and effectively implementing the Low-Cost Auto Insurance Program established by 1999 legislation. Presently, the consumer representatives on the California Automobile Assigned Risk Plan (CAARP) Advisory Board do not have sufficient resources to compete with the industry-oriented recommendations of the insurer representatives on the board when they advise the Commissioner on such issues as low-cost auto insurance for the poor. Because the insurance industry has a statutory majority on the CAARP board, the next Commissioner must provide legal and actuarial counsel to the consumer members of the board to ensure that equitable consumer-friendly regulations can be developed by the board. Under Quackenbush, the industry-dominated board has developed emergency regulations which create barriers to the success of the program (provisions of these regulations were rejected by the state’s Office of Administrative Law).
Policyholder Bill of Rights
The next Commissioner should embrace the California Insurance Policyholder Bill of Rights, developed by the state’s consumer protection organizations and Northridge earthquake survivors. Some of the recommended reforms include, generally :
In conclusion, prior to confirming Judge Low, the Legislature must be confident that he will be an independent Commissioner accountable solely to the People of California and to the laws of the State. He must promise to remain free of the insurance industry influences that led to the downfall of Mr. Quackenbush. Judge Low must disclose his record as a private judge. We believe that Judge Low must satisfactorily provide these assurances publicly if he is to restore California consumers’ confidence in the Department of Insurance and be an effective, independent voice for consumers as the next Insurance Commissioner for California.