Calif. Commissioner Warns Ins. Cos. About Use of Databases, Credit Scoring

July 25, 2003

California Insurance Commissioner John Garamendi delivered a powerful message to the attendees of the Association of California Insurance Companies' Annual General Counsel Seminar in Las Vegas July 24.

"I'm laying down the gauntlet," Garamendi said, speaking to the attendees about the use of credit scoring and historic databases such as C.L.U.E. and A-Plus. He warned insurers against the use of both tools for underwriting and rating, citing them as discriminatory and inaccurate.

"I came here specifically to deliver a message," Garamendi continued. "Challenge me in court, but I will not back down." He urged insurance companies to look towards the future to find ways to be fair to consumers when underwriting and rating policies.

Historic databases, he said, can be a helpful and powerful tool, but must be used with discretion. It's not the only way to underwrite, he said, and noted that the databases are blind and often wrong.

Garamendi cited an example of woman who had her purse stolen in Montreal, Quebec, and was later denied homeowners insurance in California because of the incident. "To harm a consumer using an incorrect database is not going to happen in California," he said.

"I'm not going to back down on this matter," he continued. "If [insurance companies] are going to use historic databases that will adversely affect consumers, they must inform consumers."

Credit scoring, Garamendi said, is a very powerful, insidious, and wrong tool to be using. "For those companies who want to use it, you will have a long fight ahead of you," he said. "I will do everything I can to prevent discrimination."

"If we are going to be successful as a state, the insurance market must be open to everybody," Garamendi added.

Garamendi touched briefly on the situation with State Compensation Insurance Fund, noting that the company has grown to become the largest property/casualty insurer in California and the largest workers' compensation insurer in America. "For them to think that they cannot be regulated, we'll be discussing that in court," he said.

Garamendi said that the workers' comp system simply has to change - it is not an option. He resolved to work towards a simpler system, one that is less contentious and provides more aid for injured workers.

Garamendi also resolved to continue his fight against fraud, stating that fraud costs have increased about $19 billion dollars this year, totaling $29 billion.

While he noted that the problems in California's insurance marketplace "seem to be numerous, none of them are insurmountable." He said that California will move to resolve the crisis. "It's our nature."

Garamendi's keynote speech opened the session, where attendees learned the latest in national trends in legislation and regulation, appellate case review, privacy, punitive damages and more. The seminar continues through July 25 at the Bellagio Hotel in Las Vegas.

Editor's note: Listen to the exclusive audio interview with Commissioner Garamendi premiering Monday, July 28, on Insurance Journal Online.