IBA West Summarizes Issues Future Commissioner Will Face

April 22, 2002

IBA West recently outlined the major issues the successful candidate for California Insurance Commissioner will face in the coming years and outlined its goals for the future of insurance regulation in the state.

IBA West General Counsel Steve Young explained that at the present time the existence of state regulation of insurance is being called into question and substantial consolidation within the insurance industry has significantly reduced the number of insurance companies, as well as independent agents and insurance brokers.

Young said a “hard market” is forming in numerous lines of insurance and told the candidates acute problems—which have the very real potential to mushroom into major crises-confront the entire workers’ compensation marketplace, and the California Earthquake Authority.

Congratulating Democratic Candidate John Garamendi and Republican Candidate Gary Mendoza on their recent primary victories, Young told the candidates the political and economic environment facing the next commissioner is likely to be vastly different from the ones encountered by previous commissioners in the last decade. With that in mind, Young outlined six major issues of importance to agents and brokers the next commissioner will face.

Young said the first two issues—attracting new insurance companies and new insurance capitalization to California and ensuring effective state regulation of the business of insurance—are, by far, the most important.

Young said attracting new insurance companies and capitalization to California topped the list because unless there is a vital, highly competitive, and profitable insurance industry at work in California, the next commissioner’s tenure is unlikely to be long or fondly remembered, precisely because of the changed economic conditions.

“We believe it will be necessary for the next commissioner to actively recruit new companies and capital to the state, and to back up his assurances of fair treatment with action,” Young said. “That does not mean that every rate increase request must be granted—obviously—-but it does mean that insurers need to see and understand that they will be treated fairly, and that responses to their applications will be provided promptly.”

On state regulation Young said independent agents and insurance brokers are committed to the belief that state regulation of insurance is better for consumers than any alternative yet proposed and stressed the importance of the next commissioner to uphold the system and protect consumer safeguards provided at the state level.

“Never has that concept been under greater attack than today, however—with even some insurers now lobbying for modified versions of federal regulation,” Young said. “The next commissioner must ensure that vital consumer protections, such as criminal background checks and fingerprinting of applicants for licensure, and requiring brokers to provide bonds, are not eliminated or watered down in the rush toward national uniformity in producer licensing.”

Young commented that the next commissioner must be able to exert strong political leadership to dissuade insurance regulators in other states from abandoning reciprocity agreements they have reached with the California Department of Insurance on licensing non-residents.

Third, Young said the next commissioner must bring stability to the workers’ comp marketplace without penalizing the State Compensation Insurance Fund.

“The condition of the workers’ compensation insurance market—evidenced by the California Insurance Guarantee Association’s standing as the second largest provider, and the growth of the State Fund as arguably the largest workers’ comp insurer in the world—speaks for itself,” Young said. “For agents and brokers, and for California’s employers, who share in a desperate need for a viable workers’ compensation market, the State Fund has done—and is continuing to do—exactly what it was created to do—ensure that California employers have access to workers’ compensation protection.”

Fourth, Young said the next commissioner must entice insurers to make their products—particularly in the areas of health care, automobile insurance, and homeowners insurance—more available and affordable.

Fifth, Young said it was important for independent agents and insurance brokers that the next commissioner help to improve the financial condition of the California Earthquake Authority.

“Agents and brokers understand that the CEA’s financial condition must be strengthened,” Young said. “However, we believe it would be grossly unfair to require non-participating insurers—or their customers—to contribute to its additional capitalization.”

Finally, Young said it was important for agents and brokers that funding of the California Department of Insurance be increased.

“There is much in the way of additional resources the next commissioner will need to improve the Department’s ability to fulfill its various mandates, including consumer protection,” Young said. “Because new General Fund appropriations are unlikely in the foreseeable future, other funding sources will be needed.”

Both candidates have addressed IBA West’s board of directors and have asked for the organization’s endorsement. The board will take such an endorsement into consideration when it convenes again this summer.

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