What the 2008 Election Means for California’s Insurance Agents

For those of you who weren’t aware, the November 4th election brought some good news for insurance agents in California: another one of us was elected to the State Assembly. Jeff Miller, currently Mayor of the City of Corona, a Farmer’s agent and a dear friend of mine, was elected to represent the 71st Assembly District encompassing parts of Orange County and Riverside. I supported him in the primary election (insurance agents stick together), and I was pleased to see that the voters considered him such a good guy they decided to let him run in the General Election unopposed. I’m supremely confident Jeff will do a great job for his district and the State of California, while also intelligently addressing the concerns of insurance agents.

There are a number of insurance issues that will be affected by the composition of the California State Legislature as well as Congress. Although Republicans didn’t lose as many seats as were predicted by the talking heads, they still lost seats, making both legislatures decidedly more left-leaning. This, unfortunately, means more left-leaning policy proposals being pushed both at the state and federal level. Expect proposals that will intensify the regulatory burden insurance agents already face.

Since the passage of worker’s compensation reform legislation in 2004, Democrats in the California Legislature have sought to roll-back many of the reforms in that bill (SB 899-Poochigian) that have lead to greatly reduced premiums for California employers, greater solvency for workers’ comp insurers, and an increase in the number of private companies providing this kind of coverage. Just this year, bills were introduced to make apportionment extremely difficult to prove (SB 1115-Migden) and to repeal the Dec. 31, 2009 sunset date allowing certain workers to predesignate (SB 1338-Migden). Fortunately, both of these bills were vetoed by Gov. Arnold Schwarzenegger, but I suspect there’s a good chance we’ll see these issues brought up again.

Unnecessarily increasing costs within the workers’ comp system will only hurt businesses and lead to the loss of jobs. It will push companies currently providing this kind of coverage out of the market. It will force more employers to obtain coverage through the State Compensation Insurance Fund, which is supposed to be “the insurer of last resort.” A return to the pre-SB 899 situation means State Fund becomes the only resort in town!

Another insurance issue that has great relevance right now given our country’s well-documented economic nosedive is the status of the state’s unemployment insurance fund. On November 6, Gov. Schwarzenegger called a special session of the Legislature to address the $11 billion budget deficit for Fiscal Year 2008-2009, which is growing by the day. The budget analysts are already projecting a $12 billion budget deficit for fiscal year 2009-2010 on top of what we currently face. Expect unemployment insurance to be a big part of the budget deliberations.

In short, the antiquated financing formula for the unemployment insurance fund was put together in the 1980s, yet legislators — bullied and cajoled by organized labor — have greatly increased benefits over the years, without providing funding. California now pays out far more than it takes in. The amount in unemployment insurance businesses and employers pay in California is absurd. Under current law, employees need only work for three-and-a-half weeks to be eligible for up to 26 weeks of payments. And that’s not all. In recent years, the Legislature increased the percentage of an employee’s wages that the state will “replace” from 39 percent to 50 percent.

To address the unemployment insurance shortfall, the Governor has proposed both increasing the amount employers must pay into the fund, as well as a slight, downward adjustment in benefits. While I completely support his proposal to move the eligibility threshold from three-and-a-half weeks to seven-and-a-half weeks, trying to collect more funds from employers is a ticking time bomb in a state in which the unemployment rate is increasing more quickly than either the California Department of Finance or UCLA economic analysts predicted. Loading up more costs on employers already stretched thin — and already laying people off — will only lead to fewer jobs, which will exacerbate the status of the already-shaky fund. President-elect Obama’s press conference calling for the extension of unemployment benefits will only frustrate Gov. Schwarzenegger’s efforts to streamline the system and make it solvent again.

Consensus on the issue of unemployment insurance might prove elusive. However, the debate will serve as a case study on the future of insurance issues in California, when we’ll see what the real impact of these partisan office turnovers will be. I wish I could be more hopeful, because that seems to be the sentiment of the day, but pragmatism is the most I can offer. We’ll all just have to wait and watch.