CPCU

As California political race heats up for governor, lieutenant governor, insurance commissioner, and attorney general, the insurance industry is speculating who will lead the state – and how that will affect insurance agents, brokers and insurers.

To alleviate some of the guesswork, Cathy Schwamberger, counsel for State Farm Insurance; Sam Sorich, president of the Association of California Insurance Companies; Joel Laucher, chief of the market conduct division for California Department of Insurance; and Chuck McAuley, regional director of government relations for ISO, recently evaluated how compliance issues, legislation and the political climate in Sacramento would impact the industry. All four were panelists in the discussion, “Politics, Legislation and Compliance in an Age of Uncertainty,” at the Chartered Property Casualty Underwriters Society Golden Gate Chapter’s All Industry Day.

Off to the races

The deadline for candidates to file for statewide office passed in March. Now comes the speculation.

“Stay tuned,” Schwamberger said. “We tend to say Democrats are tough on business, but that’s not always that clear.” For example, Schwamberger said Republic Steve Poizner, who is running for Insurance Commissioner, “is more outwardly free-market, but he fancies himself a consumer advocate.”

As part of her discussion, Schwamberger ran down the key races and candidates. Vying for Governor are the current Governor Arnold Schwarzenegger, as well as Democrats Phil Angelides and Steve Westly, among other candidates.

“Westly is viewed as a moderate business Democrat,” she said. “He has a lot of money. Everyone thinks it is going to get very nasty, and Angelides and Westly will spend a lot of money trying to beat each other.”

Schwamberger said she thought Angelides would do better in the primary election. However, because Westly is moderate, he has a better chance of beating Schwarzenegger, she noted.

She also said that conservative Republicans “are grumpy” and not entirely supportive of Schwarzenegger. “Arnold took a hit after the special election,” she said.

Schwamberger described the Lieutenant Governor face-off as “kind of interesting and fun,” with current Insurance Commissioner John Garamendi and Jackie Speier, who currently sits on the Senate Banking, Finance and Insurance Committee, jockeying for the spot. “We become a little sadistic after a while,” she said, noting how it could be fun to watch the two butt heads.

On the Democrats’ side, Speier is running against Senator Liz Figueroa. “But it looks like a Speier-Garamendi race,” Schwamberger said.

Schwamberger said she couldn’t predict who would replace Speier on the Banking, Finance and Insurance Committee, but that issue was not a major concern. “We’re not worried so much about Speier because she’s already tough, and whoever replaces her couldn’t get much tougher on the industry,” she said.

In the election for Insurance Commissioner, the more popular candidates are Republic Steve Poizner, current Lieutenant Governor Democrat Cruz Bustamante and Democrat John Kraft, she indicated. Some in the industry might be concerned about who is elected. However, Schwamberger said whoever is eventually elected, still might not make radical changes.

Because the Insurance Commissioner is an elected position, “it is often viewed as a springboard to a higher office. And if you want to move up to a higher office, you’re not going to want to raise rates,” Schwamberger explained. “You’re more likely to have a consumer focus and work along those lines.”

Overall, Schwamberger noted that moderates are having a more difficult time getting elected,” she said. “Parties are more extreme. I think we might see a shift in moderation, but it depends on the success of redistricting reform. The parties say they’re committed to redistricting reform.”

A legislative look

In addressing legislation, Sorich said the issues that could have a potential significant impact on insurers, agents and brokers in the near future are auto rating factors, prior approval of rates, flood insurance and insurer investments, he said.

“The hottest topic today is auto rating factors,” Sorich said. Voter enacted Proposition 103 mandated that three factors – driving record, miles driven, and years of driving experience – should be used when determining a drivers’ auto insurance rates. However, the proposition also allowed 16 optional rating factors, such as ZIP codes or territories, to be used as well. The proposition said that rates should be actuarily sound and be based on predictive factors. “The problem is that the predictive factors do not necessarily line up with the three mandatory factors,” he said.

As a result, Commissioner Garamendi has begun a process to develop an alternative set of regulations. He has proposed that none of the optional factors have greater weight than the last mandatory factor. A hearing on the issue was held in February, with written comments due on March 6. The feedback will be dropped on the DOI, and it will have to decide if the proposed regulations comply with 103, Sorich said. “No doubt, the department will take some action in this area soon, and Garamendi promised something by summer.”

A slightly less controversial issue, but just as important, Sorich said, is how to determine the rate of return for refunds. Prior rate approval formulas are supposed to be used as a guide on how the Department reviews rate filings. However, most of those terms don’t have definitions. Thus, the DOI has begun a process to define the terms so there is greater certainty. “It sounds like a good idea, but when you look at the definitions, they might fail to take into account companies’ operations, rate of return and expenses,” Sorich said. The DOI currently has not proposed regulations, but it could before Garamendi leaves office, Sorich said. Another issue is insurer investment regulations. “The Commissioner is concerned that insurance companies are not doing enough to invest in communities,” Sorich said.

Overall, the panelists agreed that changes were afoot in 2006 that could dramatically affect California’s insurance industry. The CPCU 57th Annual All Industry Day was held on March 3, 2006 at the Argent Hotel in San Francisco.

Topics California Legislation