New insurance commissioner faces several major problems

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Associated Press State & Local Wire

SACRAMENTO: John Garamendi doesn’t sound like a man about to step into the lion’s den of California’s ailing insurance market. “It’s a wonderful life,” he says as he prepares for his second stint as the state’s top insurance regulator.

After an eight-year absence, Garamendi will return Jan. 6 to the job he first won in 1990 when voters picked him to be California’s first elected insurance commissioner, and he’s excited.

“Among all of the state offices, with the exception of the governor, (this is) the one that touches every individual in this state in a very direct and very important way,” he says. “All of us have insurance issues. … It’s a good place to be.”

But his task is likely to be tougher this time around. In the early 1990s he had the problem of implementing Proposition 103, the rate-regulating measure imposed by voters on a healthy insurance industry.

In his second term he will be dealing with what he calls a “deeply troubled insurance market” facing a variety of problems, particularly in workers’ compensation and homeowners’ coverage.

“When he stepped in last time claim costs were going down and insurers were lowering premiums,” says Dan Dunmoyer, president of the Personal Insurance Federation of California, an industry group. “It was all positive trending. He’s now stepping in when everything is trending in the opposite direction.”

About 13 companies that were offering California employers coverage for workers’ compensation injury claims have become insolvent in the last three years, and homeowners are finding it tougher to find and keep homeowners’ coverage.

Citing underwriting losses, California’s largest insurer, State Farm, has stopped accepting new homeowners’ insurance customers, and a number of other insurers have imposed more stringent homeowner underwriting criteria.

And there are increasing pressures for the commissioner’s office to approve rate increases, which could create a tough balancing act for Garamendi, who campaigned as a consumer advocate.

“He’s going to have his hands full,” says Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights.

Garamendi shrugs it off. “Everything in politics is tough,” he says.

The nation’s weak economy is the main reason for the insurance industry woes, Garamendi says. But he also says there are several other factors at play, including souring industry investments, lack of oversight by the Insurance Department under former Commissioner Chuck Quackenbush, lawsuits, increasing claims and system inefficiencies, particularly in workers’ compensation


“The entire workers’ compensation system is in desperate need of restructuring,” he says. “It is among the most expensive workers’ compensation systems in the nation and its benefits are (among the lowest). It’s a very inefficient system.”

Garamendi has organized a pair of task forces – one made up of industry representatives, the other of employers, labor leaders and consumer advocates – to advise him on how to reorganize the workers’ comp system. He says he wants to bring in the best ideas used by other states.

He also plans to dig into the homeowners’ insurance market, which he says is in the “early stages of a serious set of problems.”

“Rates are going up, companies are tightening up underwriting practices, and there are a host of things out there that the public and I don’t understand why they’re going on,” he says.

And he says he’ll create a task force to recommend how the state can create a universal health care system that will hold down costs, improve care and eliminate a coverage gap that leaves 17 percent of Californians without health insurance.

He says the state can’t afford to put off dealing with health care despite its budget woes.

“We are spending more money for health care than any other developed nation and getting less for it,” he says. “Our mortality and sickness rates are higher than European countries which do provide universal health care.”

Garamendi received several hundred thousand dollars in loans from land developers for his successful 2002 election bid, but he says that won’t stop him from trying to speed up the impact of a new law designed to spur the construction defect insurance market and encourage the building of more affordable townhouses and condominiums.

The loans came from friends he has known for “years and years” and the money has been repaid or will be repaid shortly, he says.

“What I am going to do is pull together a meeting of the insurance companies that write construction insurance, the trial lawyers, defense lawyers, contractors and builders and … try to shorten what would normally be a lengthy period in which there would be understanding and adaptation to the new law….

“It’s not for the people who gave me loans. It’s for the citizens of this state that want to have a house, that want to live in an apartment, that want to buy a condominium.”

The insurance industry contributed heavily to the campaign of one of Garamendi’s opponents in last March’s Democratic primary, former Assemblyman Tom Calderon, but industry officials say they expect to have better relations with Garamendi this time around.

“For whatever reason he elected to take a very antagonistic, demagogic role in his first run,” says Dunmoyer. “This time he’s obviously going to be a very aggressive regulator, but he’s shied away from the rhetorical flair and focused more on issues and policies. That’s a welcome change for us.”

Both Bill Sirola, a spokesman for State Farm, and Garamendi say the fighting over Proposition 103 poisoned the relationship during his first term.

“It was just a knockdown, drag-out fight over the implementation,” Garamendi says. “They (the companies) were basically taking the anti-war view of the protesters in Vietnam: Hell no, we won’t go.”

He says insurers won’t have problems with him if they treat their customers fairly and back up requests for rate increases with ample evidence that they’re justified.


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