The time was 1999, and the place was a conference-center bathroom. Insurance Commissioner Chuck Quackenbush strode up beside me and, without so much as a hello, bellowed: “You tell Harvey that I can get you guys $10 million in a heartbeat so you can start your own consumer insurance company, since you think you know so much about insurance.” Harvey, of course, was my associate Harvey Rosenfield, the author of the sweeping 1988 insurance-reform initiative Proposition 103, despised by Quackenbush and the industry.
Soon Quackenbush resigned in disgrace over insurance-industry payments of the kind that made him think he could come up with $10 million. But aside from the odd locale, it was hardly the only time somebody working for the insurance industry sarcastically suggested that we consumer advocates should try to run an insurance company before we criticize.
That’s like saying you can’t complain about the Maloof brothers unless you play for the Kings.
The insurance industry, which sells a product most consumers hardly understand, must purchase, and never want to use, is unique. It needs the bark of a watchdog, and sometimes a bite, to make sure it treats customers fairly. Aware of that and of the fact that their industry is unpopular, insurance companies maintain an extensive political operation in California. They fund dozens of lobbyists and consultants and keep limitless coffers for campaign contributions geared toward undermining consumer protections.
The politics of insurance law in California have always been a struggle between industry clout and consumer outrage.
The keystone of California insurance law is Proposition 103. The initiative, which passed despite an $80 million campaign against it, maintains its place as the most comprehensive, populist insurance law in the nation.
Proposition 103 often is associated with its detailed reform of auto-insurance rates and an across-the-board 20-percent rollback, which returned over $1.2 billion in refunds to California insurance customers. Last year, then Insurance Commissioner John Garamendi implemented the final part of Proposition 103’s auto-insurance reforms, requiring insurers to base premiums primarily on motorists’ driving records and not their ZIP codes. Although insurance companies sponsored legislation to stop these rules, financed a $2 million campaign against them and filed a series of lawsuits to block them, most companies have begun the transition to the new, fairer rating system and are lowering premiums for most drivers in the process.
Proposition 103 also protects homeowners, doctors, businesses, boaters and just about anyone else who buys an insurance policy. (Two notable exceptions that are not covered by Proposition 103 are health insurance and workers’ compensation insurance, both of which really need a swift regulatory kick in the pants.)
Under California’s regulatory system, policyholder rates have been far more stable than in the unregulated environs the industry has maintained in most states, saving California motorists more than $23 billion in the first decade after Proposition 103, according to a Consumer Federation of America study.
In most states, rate changes require little more than some perfunctory paperwork. Under Proposition 103, insurers must justify rate changes according to a rigorous analysis meant to keep rates fair. Equal to the impact of the written rules is the fact that the commissioner, who makes the last call on any rate change, is an independent elected official not accountable to the governor or the Legislature.
Additional citizen powers granted by Proposition 103 allow consumers to challenge rate increase proposals. Our consumer group has contested several proposed rate changes that an independent actuary found to be unnecessary or excessive. These interventions have saved California consumers more than $800 million in recent years.
But Proposition 103 has done more than protect consumers from a rapacious and politically connected industry: It has fostered a thriving, competitive and profitable insurance market in California, notwithstanding the Chicken Little clucking of insurance lobbyists. Since Propisition 103, California companies have been more profitable than those nationally.
A final and crucial element of Proposition 103 is that voters, frustrated by the political influence of the insurance industry, prohibited lawmakers from amending the reforms, leaving a slim exception for furthering the purposes of the initiative with a two-thirds vote of the Legislature. Politicians, on behalf of their insurance-company donors, have wasted millions of taxpayer dollars pushing several illegal amendments to 103 that were subsequently rejected by the courts.
One challenge to consumer protection that Proposition 103 does not address is the corrupting influence of insurance industry money over the necessarily independent insurance commissioner. While both elected commissioners since Quackenbush have rejected industry campaign funds, lawmakers should enshrine independence at the Department of Insurance by enacting voluntary public financing for this office.
The Legislature also needs to examine itself. As soon as a member is appointed to one of the insurance committees, insurance industry funding follows. This necessarily taints decisions on insurance matters. If lawmakers on these committees were to refuse industry contributions, perhaps voters could feel more confident that they are in good hands.