Declarations and Exclusions

The Commissioner Goes for the Double Negative

Insurance Commissioner Garamendi claims that the insurance industry has launched a "negative ad campaign" against him in his run for the Democratic nomination for Lieutenant Governor.  As Decs&Excs has opined previously, the industry's ads (1) aren't all that negative and (2) are directed against the Commissioner's proposed regulations, and not against the Commissioner personally.  (Mr. Garamendi will be out of office at the Department of Insurance at the end of the year whether he becomes Lieutenant Governor or not, so there's little direct benefit in working for his defeat.)

For a real negative ad, one need look no further than this official Garamendi spot targeting his primary opponent, state Senator Jackie Speier.  The Garamendi campaign describes the ad, which manages to "go negative" as to both the insurance industry and Senator Speier, thus:

Our latest television advertisement highlights John Garamendi’s record of taking on the special interests in Sacramento and Washington, D.C.  In contrast, the ad points out that his opponent, State Senator Jackie Speier, has accepted hundreds-of-thousands of dollars from special interests like insurance companies and Enron, while refusing to crack down on corporate criminals.

A nice bit of rhetorical jiu jitsu there, conflating the entire class of  "insurance companies" with Enron and similar "corporate criminals."

The link comes via Bill Bradley’s NEW WEST NOTES, which reports that the Speier campaign is calling the Garamendi ad (no surprise) "misleading."  Says Bradley: "It could make it sound to the casual viewer like [Speier] took hundreds of thousands from Enron, which she did not."  The Speier campaign has posted its response to the ad via California Congressman Mike Thompson.

Even though it is plainly "negative," the Garamendi spot is small beer indeed compared to the sludge being slung in the Democratic primary for Governor, which has descended to such low levels that even prominent Democratic weblogs like Daily Kos are washing their hands of the whole affair.

~~~

Reminder: Decs&Excs' accumulated reporting on the 2006 election hubbub between Commissioner Garamendi and the insurance industry is available for one-stop perusal in the Politics of Insurance - Campaign 2006 archive category.

Rhetorical Heatwave Envelopes California

No one will ever mistake Insurance Commissioner John Garamendi for Theodore Roosevelt, physically or philosophically.   Still, there is a strong temptation to invoke TR-centric clichés such as "big sticks" and "bully pulpits" in pondering the Commissioner's latest moves in his ongoing dispute with the insurance industry over automobile rate regulation.*

Looking for a Certain Ratio

Displeased with the industry's publicity campaign against his proposed regulations, the Commissioner has unleashed a multi-front assault featuring his own press releases, and the threat of further public hearings and additional regulation, to compel insurers to reduce rates in both personal auto and homeowners insurance markets. 

The main fusillade comes in a Press Release issued today:

Commissioner John Garamendi Discloses Apparent 'Excess Profits' by Homeowner and Auto Insurers

SACRAMENTO – Today, Insurance Commissioner John Garamendi released a new report on the burgeoning profitability of Homeowners and Private Passenger Automobile Insurance companies.  The study discloses that for the past two years insurance companies have enjoyed a scenario in which the amount they pay for claims has dwindled, while the money they keep has soared.  The Commissioner has scheduled a hearing for July 20, at which he will examine this issue.  The following is his statement:

'For the past two years homeowners and automobile insurance companies in this state have profited immensely at the expense of consumers.  A new study from my office shows that the more money these companies keep from your premiums, the less they pay out in claims.  In my view, Californians are due for a break.  If my understanding of these results is confirmed by my full review and hearing, I am confident that I will be ordering a significant number of insurers to reduce their rates. . . .'

The study to which the release refers bears the benignly non-argumentative title, "Lower Claims, Higher Profits: Where Do Your Premium Dollars Go?" [PDF].  It does not, however, answer the question that its title poses, and gives a very incomplete picture of "profits" of any kind, let alone "excessive" profits.

The focus of the study is on the "loss ratio" reported by various insurers.  The loss ratio for a given period of time is calculated by dividing the insurer's earned premium in to the sum of claims or losses paid and claims-related expenses incurred in that period.  A loss ratio of .67, for instance, indicates that $.67 of every $1.00 of earned premium was spent paying or adjusting claims.

While a lower loss ratio improves an insurer's odds of being profitable, it does not tell the entire story.  In addition to the cost of claims paid on its policies, an insurer must also carry the additional costs of selling, underwriting and administering those policies.  If an insurer went an entire year without having a single claim, it would still have to bear those expenses; the premium received would never, even in the most claim-free year, become "pure profit" because those underwriting expenses would still be incurred.  Those expenses -- the costs of doing business other than loss-related costs and any dividends paid to policyholders (by a mutual insurer) -- are reflected in the "expense ratio," calculated by dividing the earned premium into the total of non-claim/non-dividend expenses.

To more accurately assess profitability, we need to look to the "combined ratio," in which the loss ratio is added together with the expense ratio (and the dividend ratio, if applicable) to provide a total overview of how much of each premium dollar is consumed by necessary costs generally.  If a company's combined ratio is a number less than 1.00, there is something left over the technical term for which is "underwriting profit"; if the ratio is greater than 1.00, then more than one dollar of every premium dollar is being consumed by costs and the insurer experiences an "underwriting loss." 

As exemplified in the charts and statistics in this article and elsewhere, combined ratios of less than 1.00 are the exception, rather than the rule, in the property/casualty insurance business.  Of course, insurers can still wind up ahead, and often do, thanks to their investment income, but profitability based solely on the amount charged to the consumer for the product, the insurance policy, is a relative rarity.  This is especially true with a product such as auto insurance, in which each insurer's policy is largely identical in coverage to every other insurer's policy, so that "low price" becomes the primary point of competition among insurers.

Maybe, just maybe, it is true that the industry is reaping "excessive" profits based on "overcharging" for auto or homeowners policies.  Whether or not that is the case, looking only at loss ratios as the Commissioner's report does, rather than the broader picture provided by combined ratios and other statistics, will not provide the answer to that question -- and the Commissioner should be clever enough to know it.

• [UPDATE 05/27/06:  Doug Simpson on his always excellent weblog, Unintended Consequences, cross-references Commissioner Garamendi's allegations while providing an overview of the issues that are raised by accusations of "excessive" profits in general, with a particular focus on the FTC's recent report on claimed "price gouging" in petroleum markets.  Read it here: "FTC Post-Katrina Gas Price Study Useful Re Other Market-Driven Industries."]

A Pro-Garamendi Editorial Cuts Both Ways

Even before today's Press Release, the Commissioner had added a number of links on the Department of Insurance home page responding to the industry's publicity campaign.  Among them is a page collecting editorials that favor his proposed regulations.  One of them, from the Modesto Bee of March 14, begins in a questioning vein:

What should be the most important criteria for determining how much you pay for auto insurance?

Most people believe their rates should be based on three things: Driving record (tickets, accidents, etc.), miles driven (do you commute or just go for groceries?) and driving experience.

That's why voters passed Proposition 103 in 1988, making those the most important criteria in setting prices for auto insurance.  That proposition should have forced insurance companies to change the way they do business.  But it didn't. . . .

I suspect insurers, too, would "believe" the driving record, etc., should be the primary factor in pricing their product -- if driving record gave an accurate indication of the risk being undertaken.  Unfortunately, the potential for an automobile to be lost, damaged, involved in an accident, etc., is dependent not just on the Very Excellent Driver who owns it, but also on the Not-So-Excellent Motorists with whom that driver shares the road and the Persons With Honesty Issues who might attack it or steal it.  The bigger picture comes out further down the page, where the ModBee editorialist writes:

The insurance companies are making some scary claims about how Garamendi's proposed changes will affect rural ratepayers.  They say the new rules will force rural residents to pay more for insurance so that city residents can pay less.  Such arguments are supposed to resonate in places such as Modesto and Turlock.

That's unlikely.  Modesto's ZIP codes are well-known to the National Insurance Crime Bureau, which compiles the auto-theft rankings that Modesto has led for the past two years.  The commissioner's office and the industry each did actuarial studies, which concluded that drivers in only five California counties would see rates go down; Stanislaus [County, in which Modesto is located] was one of the five.

So it seems that even supporters of the proposed regulations agree: No matter what they tell you in the movies, "believing" in a thing doesn't make it so.

* Organization, Man

* Administrative Note: Rather than provide post-by-post links to earlier Decs&Excs coverage of these issues, I have launched a new archive category, "Politics of Insurance - Campaign 2006," in which the continuing saga of Commissioner Garamendi, automobile rate regulation, the 2006 statewide election cycle and related hurly-burly can be followed blow by staggering blow.

Garamonday Morning Update:The Commisioner Speaks and a Bakersfield Broadcaster Succumbs to "Blackmail"

The Commissioner Strikes Back and Speaks Out:

In the previous installment of Decs&Excs' continuing coverage of Insurance Commissioner John Garamendi's allegations of "political extortion" against the insurance industry, I pointed to a Sacramento Bee editorial that opined: "That wasn't a crime. It's called politics, free speech, democracy in the raw."

Yesterday, the Bee provided the Commissioner the opportunity to respond.  He takes rather a different view of the industry's activities.  Because this is the clearest statement yet of the logic by which the exercise of political speech might be viewed as unlawful, it is worth quoting at length:

The auto insurance industry opposes these new rules and has the right to express its opinion.  But the laws of California and the United States prohibit any offer of a quid pro quo deal to influence an official's decision, and that is exactly what the industry offered to me: Delay my plan to enact new auto pricing rules until the next commissioner arrives, or else face a $2 million negative advertising campaign.  This was not, as the industry has suggested, 'a friendly heads up.'  It was an 'either/or' demand and clearly a quid pro quo message.

The negative ads were timed to air in the few short weeks before the June primary election in which I am running for lieutenant governor and during my finalization of the regulations.  The threat was an obvious and desperate effort to stop these new rules by any means necessary.

Even more obviously, this extortion attempt crossed the bounds of acceptable political discourse.

As we have seen in recent months, there is a crisis in American governance.  Political scandals have plagued our state and nation, and elected officials too often have betrayed the trust of voters in exchange for favors.  I won't be a part of that corruption.  And if the insurance industry's extortion attempt is, as you contend, an example of politics as usual, then we have a serious problem in our democracy.  And you should be just as outraged as I am.

Decs&Excs Comments:

• The Commissioner concedes that the insurance industry "has the right to express its opinion," so the supposed crime here has to relate to the industry's decision to tell the Commissioner in advance that it was going to do so.  It is hard to imagine that Garamendi would be any happier with the industry if it had simply begun running the ads without warning.

• The logic of the Commissioner's argument conflates two distinct notions: "extortion" and "quid pro quo."  Both concepts involve trying to influence action by describing the consequences of not taking that action.  In true extortion, the argument is "a bad and unlawful thing will be done to you if you don't do as you're told."  In a true quid pro quo the argument is "we will do something nice (and not necessarily lawful) for you if you do as we're asking."  Extortion involves threats; quid pro quo is essentially a form of bribery, or what the Commissioner refers to as "betray[ing] the trust of voters in exchange for favors."  Does the situation here fit either definition?  Not really.

• There is no true "extortion," because the consequence with which the Commissioner was "threatened" was, as he concedes, conduct that is entirely lawful.

• The supposed "quid pro quo" offered by the insurers was that they would not run the ads if the Commissioner simply did the thing that the ads were intended to persuade him to do.  That is, if the Commissioner made the ads unnecessary, the industry promised it would not waste its money on unnecessary ads.

• The promise or threat made by the insurance industry in Garamendi's version was, ultimately, nothing more offensive than: "If you don't do as we're suggesting, we'll go to the public with our arguments and ask the public to persuade you."

The Ads Begin, the Press Reacts:

Out in the world, the ads themselves have begun to be broadcast: versions hit the airwaves in San Diego and Kern Counties last Tuesday, and in 19 additional counties the following day.

An exemplar version of the ad (targeted particularly at Santa Barbara and San Luis Obispo Counties) can be viewed in Windows Media format on the main page at the official site of the insurer-sponsored Californians to Stop Unfair Rate Increases, or you can click here at Decs&Excs to view either the large or small versions of the ad.

Say what you will about the merits of the insurance industry's position, it is more than somewhat of a stretch to call this a "negative" ad -- unless "negative" is defined as "not in agreement with Commissioner Garamendi."  It certainly cannot be characterized as an "attack" ad, which is the way in which it was characterized in the Commissioner's original, Department-endorsed press release.  (We Californians know "attack ads" when we see them, and we are being treated just now to a variety of examples of the form in the sniping between the Democratic contenders for the nomination for Governor.) 

Worse for the Commissioner than being caught in a bit of overstatement is the fact that the ads might actually be working in swaying public opinion.  At least one television station -- the NBC affiliate in Bakersfield -- has produced a story that roundly endorses the insurers' arguments:

BAKERSFIELD - Car insurance rates will likely increase in Kern County if the State's Insurance Commissioner John Garamendi gets his way.

A couple of months ago, the idea was first proposed to increase rates in the valley while rates in the big cities would be lowered.

Now there’s a TV ad campaign opposing the rate hike idea in California’s Central Valley and it’s picking up momentum.

The video version of that report -- which incorporates most of the Kern County version of the insurers' ad -- is accessible at the link above.

Coming Soon:  Decs&Excs reviews the candidates to replace John Garamendi as Insurance Commissioner . . . and shakes its metaphorical head in dismay.

    ~~~

UPDATE [1222 PDT]: 

Now, these are the ads that Commissioner Garamendi should actually be concerned about:

• Bill Bradley's New West Notes reports on the first advertisements by Garamendi's actual opponents in the race for Lieutenant Governor.

Garamendipitously We Roll Along

When last Decs&Excs checked in on Insurance Commissioner John Garamendi, he was demanding that the insurance industry be investigated by assorted law enforcement agencies for engaging in "blackmail" and "extortion."  The industry's "crime" consists in daring to challenge the Commissioner's proposed revisions to auto insurance rate regulations -- in part by claiming that the revisions will actually raise auto insurance rates for many non-urban Californians -- at the same time as Garamendi is running for the Democratic nomination for Lieutenant Governor.  Prior posts on this subject are below: #1, #2.

Here are some of the latest developments in this story:

• I have been trying to track down the "Insurance Department study" cited by the industry's spokespeople in support of their claims, thus far without success.  I am continuing my inquiries and will report further if I am able to get my hands on the source material.

• The Sacramento Bee on Tuesday published a skeptical editorial suggesting, as I have done, that there is not much of substance in the Commissioner's accusations:

For the public watching all this, it's hard to see the crime here.  People in our democracy, even a powerful special interest, are free to denounce decisions government officials make that they don't like.  It's done all the time.  Ask Gov. Arnold Schwarzenegger.  Public employee unions spent millions to attack him during the last special election.  That wasn't a crime. It's called politics, free speech, democracy in the raw.

Garamendi's letter to the FBI looks like politics too, a creative way to blunt the political attack from the insurance industry that the candidate in a tough race for lieutenant governor knows is coming.

• With the calm demeanor and understated tone for which the Huffington Post is so well known, HuffPo commentator Michelle Kraus concludes that the Garamendi-insurer hubbub is a sign of a broader and more sinister "Republican Grand Plan to Hijack California."

Look carefully, and the specter of the plan coalesces and clarifies before your horrified eyes. . . .

[T]he stage is set for election extortion and blackmail against the current Insurance Commissioner in his race for Lt. Governor.  The insurance companies have decided to pounce upon long-term worthy public servant Insurance Commissioner John Garamendi so that they don't have to deal with him again. . . .

This Commissioner just could not, and would not, turn his back on the people of the state for his own personal gain.  Instead, John Garamendi has continued to fight for the People of California.  He would not stand down and let the People lose money that they deserved.

On May 9th, Garamendi launched an FBI investigation and an investigation by the Attorney General against these insurance carriers for the aforementioned strong arm tactics.  If he is to survive, if he is to be successful so he can continue his life's work as a true Public Servant (remember when that was not an oxymoron?), if we are truly fed up with the fixing of elections, we must rally to his defense, covering his back with our own.  It must stop here!

California Voters - it's time to say no - to election rigging and lobbying by big industry.  It's time to take back the democratic process and fight for a candidate that will not bend.  We need to take back our power and raise our voices and help candidates that are honest like John Garamendi.  Trust me when I tell you that this is not a ploy to gain attention. . . .

Apart from its hair-tearing intensity and occasional outright misstatement -- FBI investigations are "launched," if at all, by the FBI and not by state officials, and the Commissioner's accusations against the insurance industry do not include, as Kraus would have it, "election-fixing"  -- this commentary is remarkable for the amount of pure confusion it deploys.  The insurers' campaign is characterized as somehow part of a wider Republican "plan" to retake control of state government, but its impact will be felt in the Democratic primary election.  If Garamendi is defeated in the upcoming primary, with or without input from the insurance industry, the upshot will not be a Republican filling the office of Lieutenant Governor.  It will be another Democrat, freely chosen by Democrats, running to fill the post -- and probably winning it, given California Republicans' longstanding congenital inability to capture statewide offices other than the Governorship.   (The Republican candidate for Lieutenant Governor in November will be Tom McClintock, whose deep-dyed conservatism will appeal to the Republican base but will not necessarily appeal to the broader electorate.)

Does Dr. Kraus claim that Democrats should vote for John Garamendi in their primary because he is better qualified than his opponents, state Senators Jackie Speier (who just received the endorsement of the San Francisco Chronicle, not a particularly GOP-friendly institution) and Liz Figueroa?  She does not.  In a neat bit of misdirection, Dr. Kraus argues that Garamendi should receive all good Democrats' votes for Lieutenant Governor to teach those nasty insurers a lesson, rather than because John Garamendi actually deserves the position on his own merits.

For those who may want to ask her about her commentary in person, Dr. Kraus will be among the hosts of a Garamendi fundraising reception later today in Los Altos.

If This Be Extortion . . . .

And now, another lengthy post as Decs&Excs makes a foray into investigative journalism:

Yesterday, I began reporting on Insurance Commissioner John Garamendi's allegation that he was being "blackmailed" by representatives of the insurance industry, and his ensuing demand for state and federal investigation.  I opined that what the Commissioner was describing as "attack ads" -- which are, we must recall, distasteful but not at all unlawful in themselves -- might in fact be communications criticizing or disagreeing with the Commissioner's policies at a time when, coincidentally, he is running for Lieutenant Governor.  Upon further inquiry, I am increasingly inclined to that view, and to the suspicion that the Commissioner's hyperbolic characterizations and his demands for law enforcement intervention are directed more to silencing opposing points of view than they are to tracking down actual unlawful activity.

Exhibit "A"  would have to be the website of Californians to Stop Unfair Rate Increases [CSURI]: http://www.stopunfairrates.org/index.html.  That site makes no secret at all about its intentions to defeat the Commissioner's proposals to abolish "ZIP Code rating" of auto insurance policies, and states its premise plainly on its homepage:

Tell Insurance
Commissioner John
Garamendi to STOP his
department's unfair
regulation that would
raise our rates.

A new regulation from the
Department of Insurance would
arbitrarily and unfairly reduce rates
in big cities, but increase rates for
the rest of us.

In support of its argument, the site cites figures from a "Department of Insurance study" showing that by mandating that driving record be given more weight than the location at which the insured vehicle is principally located, the regulations would lower insurance rates in five primarily urban counties while increasing rates, in many cases by more than 20 percent, in the remainder of the state.  The least populous counties would receive the largest increases.  (I plan to look into the provenance of that "study," to confirm or deny the accuracy of these characterizations.)

What does CSURI seek as an alternative?

Rather than focusing time and resources on new regulations to increase costs for millions of California drivers, the department should spend more time focusing on two real problems for our state – uninsured drivers and insurance fraud, two major problems that are driving up insurance rates for everyone.

(Emphasis added.)

My principal quarrel with the presentation and the CSURI site is that it is not so forthcoming as it could be in disclosing that there is in fact significant insurance industry money behind it.  The site's "Who We Are" page lists a number of public officials from the most-affected counties and several taxpayer and business groups, but no insurers or insurance industry organizations.  On the other hand, CSURI's initial press release calls CSURI a "diverse group of local elected officials, chambers of commerce, tax groups and insurance companies" and the industry has not been making any particular secret of its involvement with this campaign in press reports, such as the Insurance Journal story quoted here yesterday. 

• Note: Calling oneself a "diverse coalition" is standard practice/camouflage for almost every advocacy group in California, regardless of the issue.  Most recently, California election watchers raised their eyebrows over the "diverse coalition" engaging in "independent" advertising expenditures on behalf on Phil Angelides in his effort to obtain the Democratic nomination for Governor.  The supposed "coalition" of firefighters, nurses, etc., was in fact funded almost entirely by a Sacramento-area real estate developer, Angelo Tsakopoulos, and his family.  It ain't pretty, but electoral politics works that way wherever one looks these days.

Where are the "attack ads" that have so upset the Commissioner?  So far, they are not in evidence, although CSURI's site incorporates a draft script [PDF] of a television advertisement that would, on a county-by-county basis, reiterate the basic theme that the proposed regulations will lower rates for those undeserving city dwellers while raising rates in [insert name of your bucolic rural county here].

Throughout the CSURI site, one finds John Garamendi being criticized by name.  In nearly every instance, however, he is referred to as "Insurance Commissioner John Garamendi," i.e., in his official capacity.  His aspirations to become Lieutenant Governor are, so far as I can tell, never referred to either directly or by implication.  And the Commissioner can hardly object to the proposed regulations being characterized as "his" given his longstanding practice (of which I have complained before) of claiming virtually every act of the Department of Insurance as his very own in the ongoing flurry of Departmental press releases.

So I repeat: based on the evidence I have been able to turn up so far, the Commissioner's "blackmail" scheme is in truth nothing more controversial than the entirely lawful expression of views with which the Commissioner, in good faith, does not agree.  The actual "crime" here is the purely metaphorical offense of a prominent public official, protected by the privileges that come with elected office, essentially defaming an entire industry and attempting to silence legitimate criticism.

More to come as this story plays out.

Postscript: Here Comes Harvey...

On a Proposition 103-related controversy like this one, it will come as no surprise that Commissioner Garamendi's critique of his critics as criminals is being echoed by Prop. 103's primary architect, Harvey Rosenfield.  In an opinion piece in today's Los Angeles Times, Rosenfield tries to leverage the Commissioner's charges in support of another of his pet issues, campaign finance reform:

By exposing the disease at the heart of our political system, Garamendi's announcement is likely to generate support for the cure: a voter initiative headed for the November ballot that would slash the influence of special interest money.  It would cap corporate campaign contributions, including to initiative campaigns, and set up publicly funded elections.

Mr. Rosenfield is apparently following this story via weblogs.  He -- or someone using his name -- left a comment on this post at Jonathan Stein's decidedly insurer-unfriendly California Personal Injury and Insurance Blog.  (As to the substance of Jonathan's post: criticism of disgraced former Commissioner Quackenbush is generally well taken, and I will offer additional comment on the wisdom, or not, of having an elected Insurance Commissioner in an upcoming post.)

Decs&Excs would also welcome Mr. Rosenfield's comments, and yours.

Extortion! Blackmail! Auto Insurance Rating Factors!

Who would ever have suspected that High Drama could surround the ongoing argument over "ZIP Code" rating of auto insurance policies?  And yet, yesterday, the running dispute between California Insurance Commissioner John Garamendi and the insurance industry over auto insurance rates boiled over into foaming, finger-pointing hubbub.  It must be an election year.

Previously ...

First, to recap how we got here:  When voters passed Proposition 103 in 1988, they imposed rate regulation on most lines of insurance in California.  For automobile insurance, Proposition 103's supporters urged that the new regime required that rates be set first and foremost based on the insured's own driving record, with other risk factors diminished or disregarded.  Through a series of regulatory revisions, insurers were given the flexibility to utilize factors other than driving records, and many insurers began to emphasize geographical factors -- where the insured car is principally located -- more heavily than other considerations.  This approach drew criticism from Prop. 103 supporters, who characterized it as a "betrayal" of the Proposition's intent. 

At the beginning of this year, Commissioner Garamendi introduced proposed regulations that would make it compulsory to weight driving record above any and all other factors.  Insurers balked, arguing that they have actuarial data to prove that location really is more closely tied to the degree of risk than is the personal accident history of the driver.  Further, they argued, elimination of ZIP Code rating will benefit urban motorists, whose rates will likely go down, at the expense of more rural insureds, who will likely see significant increases.  One prominent insurance executive briefly floated the possibility of an insurer-backed initiative campaign to counter the Commissioner's proposals.  Decs&Excs caught up with the story in early February.

Maneuvering Since February

Shortly after our last report, the ballot initiative being supported by Mercury Insurance CEO George Joseph was withdrawn.  Commissioner Garamendi went forward with the regulatory process, holding public "workshops" and hearings on the proposed regulations.  On April 26, a revised version of the regulations began circulating for comment.  The revisions do not affect the substance of the original proposal.  (The current revisions are available from the Department's site, here.)

For their part, insurers secured an amendment to a pending Assembly bill, AB 2840: the bill's original provisions relating to surplus lines brokers were deleted, to be replaced by provisions that effectively prohibit the Commissioner from taking further action to alter existing rating factors for automobile insurance unless those changes are supported by an elaborate study to be conducted through the California Research Bureau, a division of the State Library.  AB2840 has passed out of one committee and is scheduled for further hearings on May 10.

Uproars and Outbursts

Additionally, insurers gathered resources for an advertising and public relations campaign intended to persuade the public to oppose the new regulations.   At least, that is how the industry characterizes their intentions.  Yesterday, however, the Commissioner fired off a Press Release in which he gives a very different characterization.  According to the release, the insurers' advertising campaign is actually a form of "political blackmail" or "extortion."  Here is how the Commissioner describes his first learning of the insurers' plans, in a phone call on April 24:

'On that afternoon I received a telephone call from Darry Sragow, a lawyer and political consultant whom I have known for many years.  Mr. Sragow said that we needed to talk about a very serious problem for me.  As we spoke later that evening, he informed me that he had been contacted by a female representative of either the insurance industry or an insurance company.  She gave him a message to deliver.  That message gave me a choice – either delay implementation of the new regulations until the next Commissioner takes office, or face a $2 million attack campaign in the days leading up to the June primary election, in which I am running for Lieutenant Governor.'

So, what is really going on here? 

Is the insurance industry really planning an "attack campaign" on Commissioner Garamendi personally, intended to produce his defeat in the Democratic primary?  (Mr. Garamendi is seeking the nomination for Lieutenant Governor against two Democratic state Senators, Liz Figueroa and Jackie Spier.  The victor will face conservative Republican Tom McClintock in November.) 

Or, is the Commissioner trying to demonize what would otherwise be perfectly permissible 1st Amendment-protected efforts of the industry to be heard on an issue of public concern -- the proposed auto rate regulations -- because the timing of that effort happens to coincide with his quest for higher office?  It is not hard to imagine a scenario, after all, in which the latter sort of campaign could negatively affect Garamendi in the primary: "Gosh, Muriel, if that Mr. Garamendi wants to raise our insurance rates, I'm surely going to support someone else for Lieutenant Governor when I vote in the primary."

The answer, one supposes, will lie in the ads themselves.  The Insurance Journal reports that the insurers' $2 million budget "will allow the coalition to educate households in the following counties: Butte, Del Norte, Humboldt, Imperial, Inyo, Kern, Kings, Mendocino, Nevada, Lake, Plumas, Santa Barbara, San Benito, San Diego, Solano, Tulare and Yolo."  Those are mostly-rural counties, the sort that the industry contends will see rate increases if ZIP Code rating is abolished. 

If the insurers are indeed only intending an "educational" campaign directed to voters whose rates will likely go up, that certainly sounds like legitimate political discourse, regardless of its impact on the Commissioner's aspirations to the Lieutenant Governorship.  If, on the other hand, the ads that begin to circulate actually are personal "attacks" on the candidate, that will be a different story (although still subject to 1st Amendment protections in this weblogger's opinion).

Developing . . . .

UPDATE [1450 PDT]:

The drama and demonization escalate: 

Either there is something seriously disturbing afoot on the part of the insurance industry, or else the Insurance Commissioner is risking a public political meltdown.  In a Press Release issued at midday today -- read it here -- the Commissioner shares the text of a letter he has directed to the FBI, the U.S. Attorney's office and the state Attorney General, demanding that they investigate what he persists in characterizing as an unlawful threat, blackmail or extortion.  Excerpt:

'I firmly believe that this amounts to a serious attempt to blackmail me in my role as California’s elected Insurance Commissioner. Clearly, I was offered a significant advantage. If I abandoned my responsibilities and delayed implementing the will of the voters, I would not be hit by a $2 million negative advertising campaign in the final weeks leading up to the June election.

'I do take this threat very seriously, but I will continue to carry out my constitutional duties and the expressed will of the voters in passing Proposition 103. Apparently, the people making this threat had hoped to hear otherwise. They mistakenly believed that I would consider the outcome of the next election to be more important than my obligations as Insurance Commissioner. They were dead wrong. 

'While this threat was unsuccessful, I believe it is now my responsibility to stand up to this powerful special interest group and set in stone that they cannot engage in, much less succeed with such tactics. This is a serious threat not only to me, but also to the Insurance Commissioners who follow. They, and all other regulators, must be allowed to protect the consumers of California and carry out the laws of the State and people in an atmosphere free of coercion, blackmail and extortion.

As we said above: developing ....