New Trade Association Gives Voice to Calif. Insurers

January 26, 2004

A new California trade association has been formed to represent the needs of the state’s domestic insurers. The Pacific Association of Domestic Insurance Cos. (PADIC) began operations Jan. 1.

Formed by several small- and mid-sized insurers, PADIC is headed by Capital Ins-urance Group CEO and President Peter Cazzolla. Former Alliance Vice President and Western Regional Manager Peter Gorman has been appointed executive director. In addition, John Norwood, of Norwood and Associates, will represent the association.

PADIC currently has approximately a dozen members who write homeowners, auto and commercial lines except workers’ compensation.

“The number of domestic insurance companies in California has shrunk dramatically in the last couple of decades for a number of reasons, not the least of which was this open competition of the
workers’ comp,” Gorman said. “The remaining domestic insurers were concerned that their unique interests were not being well represented in Sacramento, and that’s not criticism of any particular trade association.”

Gorman said that while domestic insurers have shared these concerns for many years, they felt now was the time to speak up with the recent election of Gov. Schwarzenegger and his concerns about preserving business in California.

“These CEOs [of the domestic insurers] felt that the legislators and the governors in the past years really have not been responsive to keeping business in California and have let the domestic industry decline dramatically,” he said. “But there are a number of reasons why that has happened; not all of that can be blamed on the political structure. Domestic insurers have a high concentration of [catastrophe] exposures here, and all of their risk is here. They don’t have the luxury of dispersing it like the large multi-state companies. They don’t have the capital formation to withstand some of these catastrophic exposures that the large multi-state carriers have.

“The feeling is that the domestic insurer’s exposure needs to be considered when policy is being formulated,” Gorman said. “I was at the table in the governor’s office when the industry was there deciding whether to go with open competition in workers’ comp or to preserve the minimum rate law. The domestic insurers were
arguing in favor of preserving the minimum rate law because they felt that they would have a hard time surviving under open competition, and indeed history proved them correct. I think you’ll find all along
that domestic insurers have always felt that their needs and their market is a little different from what the entire industry was representative.”

PADIC’s formation was accelerated by the recent merger of the Alliance of American Insurers and the NAII. Gorman said the smaller domestic insurers felt that their voices would not be heard in the new thousand-member trade association.

In a press release, Cazzolla stated that PADIC members will be focused on conveying the message to legislators and regulators that increased regulation will only add to the already high cost burden on small business and policyholders.

“We need to let legislators know that we are a part of the California economy,” Gorman added. “We are here for the long term, and we really don’t have any place else to go. We don’t step in and out, we
don’t abandon our policyholders. If they don’t acknowledge our need to fulfill that role and stabilize the market, then the entire industry is really not going to be healthy.”

PADIC is looking to increase its membership in order to create a stronger presence in Sacramento.

Gorman added that the association looks forward to working with independent agents.

“One of the conditions for membership in PADIC is that they be primarily independent agency based distribution companies. That is deliberate because we want to work very closely with the independent agencies, because they are the people that bring us business and keep us healthy.”

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Insurance Journal West January 26, 2004
January 26, 2004
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