By HOWARD FINE
As state Insurance Commissioner Steve Poizner gets settled into office, some insurers are looking to him to soften or even undo some of the moves of predecessor John Garamendi.
Auto and property/casualty insurers want Poizner to roll back regulations they say will increase costs for their policyholders. They point to Poizner’s business background in pinning their hopes on him.
“We hope he takes his understanding of how business works from his days as a Silicon Valley entrepreneur and applies that understanding to this job,” said Jerry Davies, spokesman for Farmer’s Insurance Group of Cos., part of Switzerland’s Zurich Financial Services Group.
Poizner, 49, started software companies in Silicon Valley before running for office. After losing an Assembly race in 2004, he came back to defeat former Lieutenant Gov. Cruz Bustamante for the insurance post in November.
He was the only Republican to win a statewide office.
But Poizner, who refused to take campaign money from insurers, said he won’t be a pushover for the industry.
He said he intends to uphold regulations by Garamendi over insurer opposition, including those mandating that auto insurers base premiums on driving and safety records, not addresses.
Those regulations must be completely implemented by mid-2008.
“I do believe that a person’s auto insurance rates should be based primarily on their driving record and I intend to complete the rollout of these important regulations,” Poizner said.
That stance helped Poizner win the endorsement of consumer advocate Harvey Rosenfield, author of the winning 1988 initiative requiring auto insurers to base their rates primarily on driving records, but which only was partially implemented.
“Absolutely, yes, insurance companies will get a fair shake with my office,” Poizner said. But “I will remain fiercely independent of the insurance industry. I will continue to speak out against practices that harm consumers.”
Homeowners’ Insurance
Poizner is likely to hear from insurers on more than just the auto issue. Personal property and casualty insurers want him to reconsider regulations enacted by Garamendi just before he left office.
The rules prevent insurers from considering some prior claims (such as weather-related claims) when calculating annual homeowners’ insurance premiums. They were part of a larger set of proposed reforms that Garamendi had billed as the “Homeowners’ Bill of Rights.”
“This would suppress rates for some homeowners, but the rest of homeowners will have to subsidize this,” said Rex Frazier, president of the Personal Insurance Federation of California, which represents the major property and casualty insurers in the state. “This is an opportunity for Mr. Poizner to show whether he believes in market rates or politically suppressed rates.”
An even bigger issue looms for Poizner in the next few months, according to Frazier: deciding whether to accept broad criteria adopted by Garamendi to calculate rates for all lines of property and casualty insurance.
The industry believes the formula used by Garamendi generates rates that are inadequate to cover costs.
“We would like Poizner to change these regulations. Otherwise, it could drive capital out of California,” Frazier said. “At the very least, companies won’t be willing to adjust their rates,up or down,as often.”
Inherited Infighting
The wrangling is part of a long-running battle between insurers and now Lieutenant Gov. Garamendi over rates and whether insurers are reaping excessive profits as consumer advocates have maintained.
Garamendi’s of-fice last year produced a report showing several property and casualty insurers kept more than 60% of premiums after claims payouts. He frequently cited the report in trying to jawbone insurers into lowering rates.
Bloomington, Ill.-based State Farm Mutual Automobile Insurance Co., which has operations in Irvine, recently said it was lowering its homeowners’ insurance rates an average of 20%, twice as much as the company initially indicated in September.
Garamendi used the announcement to claim a victory.
But Northbrook, Ill.-based Allstate Insurance Co. is proceeding with a proposed increase, which will be one of Poizner’s first tests.
Poizner recently said he was “concerned about the high cost of property and casualty insurance in some areas.” But he wouldn’t go any further, saying he was “still looking at the economics of the industry.”
While insurance companies will be pressuring Poizner, consumer advocates want him to hold the line.
“This is an industry that believes they should be able to charge whatever they want,” said Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights, the group founded by Rosenfield.
In general, Poizner said his goal is to promote competition in the state’s insurance markets.
“It is good for the insurance industry and good for consumers to have a lot more companies offering a lot more products,” he said.
Poizner also said he favors “tweaks” to the state’s workers’ compensation system.
As costs for most employers have plummeted after two rounds of reform earlier this decade, labor and lawyer groups have argued that the reforms have gone too far, preventing legitimately injured workers from receiving treatment.
“I’m looking for ways to tailor and tweak the reforms to make sure injured workers get the medical treatment they need as fast as possible to return to work,” he said.
But Poizner has little power beyond his regulatory authority to make major policy changes. That requires the cooperation of the Legislature and Gov. Arnold Schwarzenegger, who must sign off on any legislation.
Fine is a staff writer with the Los Angeles Business Journal.
