Poizner rule changes criticized as a nod to insurance industry

SACRAMENTO – Insurance Commissioner Steve Poizner rode to victory in
2006 partly on the effects of a TV ad ridiculing his opponent, Cruz
Bustamante, for taking bagloads of cash from the industry he wanted to
regulate.
Two years later, Poizner has held firm to his pledge to refuse insurance
industry contributions, even as he lays the groundwork for what will be
an expensive run for governor in 2010.
But critics are worried that Poizner, the independently wealthy Silicon
Valley entrepreneur, is cozying up to the insurance industry in less
blatant ways than a direct exchange of money. They suggest that Poizner
has proposed a series of rule changes that will result in higher costs
for homeowners and drivers — as a nod to the industry, and indirectly to
build his alliances with the Republican Party, which relies heavily on
contributions from insurers.
“His heart is in the right place, but his ideology and his political
party is exerting a pull on him that’s leaving him in the middle between
consumers and industry,” said Amy Bach, executive director of the San
Francisco-based consumer advocacy group United Policyholders. “That may
be where he wants to be, but I don’t think that’s where the public wants
him to be.”
Rates will go “through the roof” if Poizner approves the regulations,
which will likely face public hearings by late January, said Harvey
Rosenfield, co-founder of Consumer Watchdog and the author of
Proposition 103, a 1988 initiative considered to be the nation’s most
consumer-friendly system of rate regulation. “He’s begun to
fundamentally dismantle the formula that’s limited the amount insurance
companies can charge us and has produced $62 billion in savings,”
Rosenfield said. “It’s impossible to fathom how Poizner thinks this is a
good idea politically except he does have to pay attention to the
chamber of commerce lobbyists who are against all forms of regulation.”
Poizner’s office defended the proposals, saying he’s trying to strike a
balance between looking out for consumers’ interests and creating
conditions for a fair and competitive marketplace.
“Since Commissioner Poizner took office, he’s taken his role as top
consumer watchdog seriously,” said Darrell Ng, Poizner’s spokesman. “And
because of that homeowners and auto rates have decreased by $1.5
billion since January 2007. He’s demonstrated he fights for consumers,
and still has two years to go.”
One change Poizner is seeking would allow insurance companies to offer
rate reductions of up to 7 percent without having to open up their
finances to the insurance commissioner. They would still be asked to
open their books every three years to justify their rates, but in the
interim would be able to determine their own rate cuts. Critics say
nothing in the law compels Poizner to demand they open their books.
“Currently, companies are reluctant to come in at all in the interim
because they’re worried they’d be forced to make large rate reductions,”
Ng said. “So, they sit on their current rates or higher rates. Given
the choice of somebody sitting on higher rates or making it easier for
them to come in with lower rates, we’ll take the lower rates.”
But Rosenfield said it’s a scheme to allow insurance companies to avoid
larger rate decreases required by law — and to avoid scrutiny of their
finances.
Other proposed changes would:
Allow insurers to stretch rate cuts of less than 15 percent over two
years rather than one — which Consumer Watchdog said will allow them to
continue charging excessive rates.

Eliminate rules that limit how insurance companies project
their claims payouts, which would allow them to increase rates based on
inflated costs and expenses.

Increase the amount of non-loss expenses, such as executive
salaries or advertising, that companies are allowed to pass through to
customers.
Poizner issued a series of changes this year. Rosenfield said those
regulations have raised auto insurance rates by $26 million, and eight
companies have applied for another $300 million in increases to auto and
homeowner coverages.
Poizner has angered critics by surrounding himself with insurance
industry insiders. Poizner’s first move was to hire former insurance
industry lobbyist Bill Gausewitz as his special legal counsel for policy
issues.
His chief of staff is Jim Richardson, who’d previously served as chief
of staff for former Assembly GOP leader Jim Brulte, a consultant with
California Strategies, whose client roster is known to include big-name
insurance companies. Brulte, who co-headed Poizner’s 2006 campaign and
is leading his exploratory committee for governor, declined to comment
for this story.
Poizner’s staff counsel is Adam Cole, who previously was a partner at a
major law firm that has long battled Proposition 103, though his own
role was seeking claims against insurance companies.
Insurers have had their disagreements with Poizner. The Association of
California Insurance Companies, for example, is suing the Department of
Insurance to drop a rule that requires insurance companies to pay
consumer groups for court costs when a requested hearing is canceled.
“We do not always agree with Commissioner Poizner,” said Sam Sorich,
president of the American Association of Insurance Companies, which
represents 300 insurance companies in California. “It’s a mistake to say
he’s been one-sided.”
But critics say that Poizner has allowed his role as advocate for
consumers to be trumped by his devotion to the free market — and to the
Republican Party. He has spent the past two years cultivating
relationships with Republican activists in an attempt to overcome their
reluctance to support an abortion rights candidate. Mollifying the
pro-business wing of the party with a more lenient view toward the
insurance industry, they said, could go a long way in pulling the party
behind him for his gubernatorial race.
“I think he’s struggling with his own ideology; he has an inbred dislike
of regulations,” Bach said. “That is proving to be a substantial
challenge for him. I do think there will be political fallout for him if
by the time he runs for re-election or for governor, the public
perceives him to be in bed with industry and is rubber-stamping rate
increases.”
Poizner has been helpful to homeowners victimized by wildfires,
recovering more than $10 million for wildfire victims in cases in which
they were underinsured, and has kept his office open on weekends to help
wildfire victims process their claims, Ng said.
Bach lauded Poizner for prodding insurance companies to agree to quickly
advance claims money to fire victims. But she said he’s moving too
slowly in providing help to fire victims who were underinsured.
Lt. Gov. John Garamendi, who served eight years as insurance
commissioner, said his successor has an obligation to hold insurance
companies accountable for any rate changes. Garamendi, a Democrat, is
also running for governor, so the two could wind up as opponents in
2010.
“It’s failed leadership,” Garamendi said. “He’s failing to protect
consumers. And he’ll be held accountable if he wants to play footsie
with the insurance industry.”
“It’s a very difficult job fighting one of the strongest industries in
America,” Garamendi added. “If you’re not willing to fight, they’ll roll
right over you. If you’re not willing to fight for the consumer, you’re
in the wrong business.”
Poizner may be showing a tin ear to the politics of the times, said San
Jose State political science professor Larry Gerston, which are
demanding more government protection from private industries, not less.
“This is a moment when people are very unhappy with the lack of
oversight or regulation,” Gerston said. “Given this environment, it’s
somewhat curious that he’d swim upstream and propose fewer regulations.”