Associated Press State & Local Wire

SAN FRANCISCO: This year’s insurance commissioner race looks like a flashback to 1990 – with consumers fretting about higher rates and businesses fuming about the workers’ compensation system, Democrat John Garamendi is promising to come to the rescue.

It’s up to Republican challenger Gary Mendoza to persuade voters that Garamendi’s 1991-95 stint as California’s first elected insurance commissioner was a mistake that shouldn’t be repeated.

Both candidates say they will spend about $1.5 million on television advertising during the final two weeks of the campaign to get their points across.

Garamendi, 57, plans to depict himself as a battle-tested consumer watchdog with the moxie to face down the powerful insurance industry.

Mendoza, 47, will highlight his get-tough approach with health insurers while he served as California’s commissioner of corporations from 1993-96.

While Garamendi says his ads will focus exclusively on his own record, Mendoza plans to attack his opponent for his handling of an insolvent insurer, Executive Life, a decade ago.

Garamendi sold Executive Life for $3.25 billion to a group led by French bank Credit Lyonnais in a deal that remains the subject of various legal actions.

Thousands of Executive Life policyholders wound up with annuities 30 percent to 50 percent below their promised monthly payments. Some of those policyholders blame Garamendi, saying he put his political ambitions ahead of their financial welfare.

Garamendi insists he got the best deal possible for Executive Life and dismisses Mendoza’s criticism as a desperate measure. “I’m tired of explaining (the Executive Life deal) and I am tired of justifying it.”

Mendoza says Garamendi’s reticence reflects his desire to gloss over the details of his term as insurance commissioner.

“His campaign strategy is built on a statewide familiarity with his name and a lack of familiarity with his record,” Mendoza said. “If people really evaluate my record and his, I am confident I will win.”

Mendoza received a major financial boost in late October when the Republican Party contributed $1.17 million to his campaign, providing him with the resources to raise his own name recognition.

Hispanic, Mendoza has been hailed by some Republicans as the kind of centrist candidate that the party needs to recover years of lost ground in California.

As they tout their records, both candidates disparage California’s last elected insurance commissioner, Chuck Quackenbush, who resigned in disgrace in June 2000.

“Quackenbush destroyed the department,” Garamendi said. “I want to rebuild it into what I had the first time – the best consumer protection organization in the country.”

Mendoza contends Garamendi’s put his own political interests ahead of consumers during his first term, hurting the state even more than Quackenbush did.

As he positioned himself for an unsuccessful 1994 bid to become California’s governor, Garamendi antagonized the industry. Many insurers refused to lower their rates and several carriers stopped doing business in California.

Quackenbush – a Republican elected as insurance commissioner in 1994 and again in 1998 – resigned under the threat of impeachment in 2000. He faced allegations that he waived up to $3 billion in industry fines in exchange for contributions to a nonprofit fund.

Retired appellate judge Harry Low has been running the department since Gov. Gray Davis appointed him to the job after Quackenbush‘s departure.

The fallout from the Quackenbush scandal already has had a significant impact on this year’s race.

Unlike past insurance commissioner elections, neither of the major party candidates is accepting industry contributions. The aversion largely stems from the public backlash to the industry’s heavy support of Quackenbush in the 1994 and 1998 elections.

Both candidates have accepted $50,000 contributions from Mercury Management Services LLC, which has ties to a leveraged buyout firm that invests in insurers. Neither candidate views Mercury‘s campaign contributions as a possible conflict of interest.

The Republican Party made virtually all of its donations to Mendoza’s campaign after several insurers and an insurance brokerage contributed $115,000 to the GOP during the first three weeks of October.

The timing of the insurance contributions to the Republican Party and the GOP’s contributions to Mendoza should raise concerns about whether the industry is still trying to influence the election, said Doug Heller, of the Taxpayer and Consumer Rights, a watchdog group.

Insurers tried to derail Garamendi’s candidacy during the March primary by pouring more than $1.5 million into the campaign of a Democratic opponent, Assemblyman Tom Calderon.

With its money being turned away, the insurance industry is trying to build better lines of communications with both candidates.

“The next commissioner is going to inherit a very thorny and complex marketplace,” said Dan Dunmoyer, president of the Personal Insurance Federation, a trade group representing several major insurers. “We just want to make sure they know what they are getting into.”

Virtually everyone agrees California’s $86 billion insurance market is facing one of its most volatile periods since the late 1980s, when rising rates spurred voters to approve radical reforms in Proposition 103. That initiative contained the provision that transformed the insurance commissioner’s job from an appointed to elected position.

“The public’s antenna really needs to be way up for this election,” said Proposition 103 author Harvey Rosenfield.

After steadily declining for most of the 1990s, California’s auto insurance prices have been climbing the past 18 months. Worries about interior mold are also driving up the cost of homeowners insurance by as much as 50 percent. In some cases, carriers are refusing to cover homes.

The industry’s heavy losses in the stock market over the past two years also have contributed to the higher premiums for personal property coverage.

Workers’ compensation insurance, the coverage that pays employees injured on

the job, also is developing into a major headache with prices and claims rising.

The next insurance commissioner faces “a very challenging job,” said Low, who has endorsed Garamendi. “He is certainly facing a very hardened market.”

While in office, Garamendi established many of the ground rules for enforcing Proposition 103, an often contentious process that contributed to the industry’s disdain for him. During the battle, Garamendi obtained most of the insurance rebates owed under Proposition 103.

Garamendi, who has held a political office for most of his career, promises to be less confrontational if he is re-elected. What’s more, he says he doesn’t have any designs on higher office this time around.

Mendoza oversaw California’s health insurance and securities industries after being appointed as the state’s commissioner of corporations by former Gov. Pete Wilson.

A lawyer, Mendoza contemplated a run for attorney general before entering the insurance commissioner’s race at the last minute. He doesn’t deny that he has higher political ambitions, but says he won’t let them get in the way of the insurance commissioner’s job.

Four candidates from smaller political parties also are vying for the job. They are Steve Klein of the American Independent party; David Sheidlower of the Green party; Dale F. Ogden of the Libertarian party; and Raul Calderon of the Natural Law party.