Bustamante and Poizner in the final campaign stretch

From holding the line on new reforms to reducing uninsured motorists, a fair share of work lurks ahead for California’s soon-to-be-chosen insurance commissioner. Front-runners fighting for the honor of regulating California’s insurance industry and regulatory environment in November’s election are Steve Poizner and Lt. Gov. Cruz Bustamante. With the election only weeks away, Insurance Journal sat down with the top candidates to find out how they would grapple with current concerns of workers’ compensation reform, uninsured motorists, rate evaluation, homeowners coverage and natural disasters, among other issues.

Insurance Journal: Why do you want to be California’s Insurance Commissioner and how do you view the role?

Bustamante: I want to be insurance commissioner because it is a culmination of my life’s work. For 20 years, I have been involved in government at the state level, participating and creating public policy. I have worked my entire career to be able to handle this particular job. I’ve been in the middle of the debate and have brought stakeholders to the table to find practical solutions — not philosophical solutions — but practical solutions to issues trying to make sure that all unintended consequences are limited. I’ve been in that process, and I want to make sure that I continue to fulfill that role as well as continue to be an advocate for the people of the state of California.

Poizner: I didn’t want to sit on the sidelines and be a spectator from a political policy point of view. The state of California is heading in the wrong direction in a variety of areas. A couple, most important to me, have to do with the deterioration of public schools and the fact that the business climate is so hostile. Jobs are leaving the state at a rapid clip. I decided I was going to find a position where I could contribute to revitalizing California’s economy.

The insurance commissioner [position], as you might know, was structured 20 years ago to be one of the most influential economic policymakers in the state. After Proposition 103 passed in 1988, the insurance commissioner became one of only eight positions elected statewide. Prop 103 also doubled the number of employees reporting to the one commissioner to 1,300, empowering the commissioner to regulate almost all the different parts of the insurance markets in California.

If you add up all the premiums, it’s about $120 billion a year that come under the regulatory authority of the California insurance commissioner, close to 12 percent of the entire California economy. I want to be California insurance commissioner because in this position, I can have a positive economic impact on every business and every consumer in the state of California. And, I can think of no better way to give back to the state, which has been a great place for me to live and work. I would get to contribute to the economic revitalization of our economy.

What can you do to lower workers’ comp premiums and relieve some of the regulative pressure on California businesses?

Bustamante: It’s important we continue the progress that’s been made on the reforms. I believe we will still be able to lower rates another 10, maybe 15 percent, and I am looking forward to working with the employer groups as well as the insurers to begin doing that.

Poizner: The insurance commissioner can play a very significant role in lowering the costs of doing business in California. I am going to do a few things [that] have an impact on job creation in business. One of my top priorities is to attack insurance fraud.

Insurance fraud in California is huge — $15 billion of insurance fraud a year — and that drives up the insurance costs for everybody, businesses as well as consumers. I have a program where I am going to go after the people who are committing insurance fraud and, as insurance commissioner, I would have 300 peace officers that would be working for me.

Right now, there is not great coordination going on between the insurance commissioner’s team and the district attorneys of California. There is a 25 percent vacancy rate at the department of insurance’s fraud unit. I am going to fill those positions, put together these partnerships with the district attorneys, and we are going to drive down fraud. Businesses will see the benefit from that as their insurance rates go down.

Second of all, with regard to workers’ comp, being an entrepreneur from Silicon Valley, I talk to venture capitalist and business people, who are starting companies all the time. The top reason why people are leaving the state of California is the high workers’ comp rate. I will hold the line on these very important workers’ comp reforms passed in 2003 bringing workers’ comp rates down significantly. Powerful sources in California want to roll back these reforms, and I will absolutely fight to keep them in place. It really is critical for the business community.

At the peak of the crisis, workers’ comp rates were 6.5 percent of payroll, on average. Now, they are down to 3.75 percent of payroll. In the past two years or so, they have come way down, which is fantastic, thanks to reforms by the governor and the legislature in 2003.

The countrywide average is 2.5 percent of payroll. California still has a way to go to get to the national average. There is more work to do, but the progress has been significant.

Are workers getting adequate compensation for injuries?

Bustamante: There are always unintended consequences in any public policy, and there are always going to be situations in which employees are not getting all the care for all the different issues that are facing them.

Poizner: Yes, I think what happened in the past is that with the broken workers’ compensation system, with the rates through the roof, it was not clear what benefits workers were due. Now, the new reforms put in specific guidelines that need to be followed when a worker gets injured.

One hundred years ago, [workers’ comp] was meant to be a no-fault system. Instead, it turned into a system full of litigation because of all the ambiguity. Now, we have specificity in the rules, the rates have come way down and there are fewer lawsuits. The idea behind the system though is to get injured workers the medical attention they need as rapidly as possible so we can get them back to work. That is great for the employee and the employer.

I’ll be looking for ways to improve the system and speed the delivery of medical services to employees. But the current reforms that were put in place two years ago were important, and I will fight to keep them in place.

How would you reduce the number of uninsured motorists in California?

Bustamante: We’d expand low cost auto as well as recommend to insurers to provide additional entry-level products. It is important that the program reach out to working families with limited incomes so that they can become insured — that is extremely important. It’s already against the law to not have insurance and drive, but when people don’t have the means, they are going to go ahead and do that anyway. It’s up to us to find a private sector way of trying to expand the entry level products to be able to reach out and encourage them. As insurance commissioner, I would take time to make sure that we are doing outreach to all those communities.

Poizner: In California, it is a very serious issue. When you look at all 50 states, California would be 49th — the second worst state in the country with regard to motorists that drive without insurance. In California, it is about 25 percent; one out of every four drive without insurance. Of course, policyholders end up paying for it. In fact, auto insurance companies end up having to charge an extra 10 percent or so on average in California to cover the cost of the uninsured. That’s just not right.

It’s not fair to the average family following the rules and buying liability insurance like they are supposed to. What I want to do is enforce the law. The fact is legislature now requires insurance companies in California to notify the [Department of Motor Vehicles] when someone cancels or stops paying their insurance. Right now, they are getting this information from insurance companies and just sitting on it. I want to work with the DMV to do the database matching so they can match up who is not paying insurance to who has driver’s licenses, then enforce the law. The law here requires a letter to be sent out saying if someone doesn’t buy insurance or show proof of insurance, we are going to take away their driver’s license, like in other states.

How would you respond to pressure to back away from controversial laws, including those requiring insurers to base auto rates primarily on driving records?

Bustamante: The decision has been made clear by the voters of this state to make sure that rates must be primarily based on a good driving record. There is no nexus in terms of providing other kinds of activities to establish a person’s premium. There maybe 13 or 14 different factors involved in a complicated process to establish rates by insurers, but we need to make sure that the driver’s record is the predominant issue in establishing the rates.

Poizner: Auto rates should be based primarily on driving record. That is fair and what the law stipulates. On the other hand, I do believe that where you live should play a role in calculating one’s rates. In California, there is this complex formula with all these variables that go into the calculation of rates. I’ll continue to support that where you live should play a role. It shouldn’t be as important in terms of weight as your driving record, which should be the primary factor.

Do you endorse the incumbent’s effort to bar insurers from raising homeowners’ premiums or canceling policies following legitimate claims?

Bustamante: It is outrageous that people who enter into a contract with a company to provide a certain protection, pay their premiums, file legitimate claims, then have that policy either denied or canceled. I believe the real concern is the “use it-lose it” issue, and as a regulator, I would be monitoring this carefully to ensure that type of action does not take place.

Poizner: I do not support the idea that an insurance company should be able to cancel someone’s insurance simply because they filed a legitimate claim. Insurance companies should be allowed to evaluate the underlying risk to properly price a product, but I don’t think it is fair or reasonable for an insurance company to cancel or not renew someone simply because he or she turned in a legitimate claim.

Should there be a national policy for natural disaster?

Bustamante: There needs to be a national policy for natural disasters. The future is going to require and demand it, like the National Flood Insurance Program. We are going to have to include all natural disasters, whether it’s hurricanes, tornados, fires, floods or earthquakes. Having a nationwide pool to be able to provide an insurance policy is going to be extremely important. Currently, in California, there are very few people who have earthquake insurance primarily because it’s a very high-cost product and it is not comprehensive. It’s important to put Californians in a much larger pool with people who have other natural disasters to make the policies more comprehensive and more affordable.

Poizner: I support the concept. If one could be put together, I’d be supportive. On the other hand, in California, we are facing some pretty unique exposure to risk when it comes to natural disasters with earthquakes being one of the primary ones. As insurance commissioner, I am not going to wait for some national program to come and solve all the issues here in California. I’m skeptical there will be a national solution to California’s unique problems. So I support the idea, but will be looking for solutions here in California to make sure the problems get resolved with regard for insurance for natural disasters.

Do you favor a free market for the California insurance industry?

Bustamante: I believe in a free market system, yes. I will always make sure the marketplace is competitive and effective. It’s extremely important that we not go back on the progress that’s been made, but to continue the progress and have a healthy marketplace, a place where there are a lot of folks and competition — it’s one of the best ways of ensuring low rates.

Poizner: I absolutely believe in a free market system. My whole life I have been starting and running companies. I strongly believe in free markets. No. 1, California has rules and regulations already in place in terms of insurance regulation. As insurance commissioner, I’ll be the chief regulator of the insurance industry and will enforce the laws whatever they are. I am going to enforce them whether I like them or not. On the other hand, I will always be looking for ways to stimulate competition because I believe policyholders will always benefit when there are more companies going after their business. I am a big believer in stimulating more competition in every market I can possibly do that with.

Do you favor state regulation or federal regulation?

Bustamante: I’m a state’s rights kind of guy. It’s important that the consumer protections that have been put into the contractual activities between companies and individuals, or companies and employers, is an important part of making sure that the type of product we have is effective and fair. So I prefer a California version than [one] from perhaps a smaller state.

Poizner: I favor state regulation. I believe that the way insurance is regulated has a huge impact on the price and availability of products. I am not comfortable turning all of that regulation over to federal regulators who are way too far away from the action to be effective.

How do you plan to communicate and work with agents and brokers if elected?

Bustamante: I consider them a very important part of the process. They are the group of people who go out and explain insurance to people. I have benefited personally from the work of good agents. I have had a chance to protect my family because of the good work of agents and brokers. There are always a few who spoil it for everyone else, but the vast majority of agents and brokers are trying to do a good job and make sure their issues are represented in this process.

Poizner: I believe that agents and brokers are a very special group of people, because at the end of the day, agents and brokers are the ones in the trenches fighting for their clients every day. They are really advocates for their clients. They are the ones who interact with insurance companies every day; they are the ones who deal with households and businesses every day. I will lean heavily on agents and brokers for ongoing information flow. I will put together advisory panels and committees with agents and brokers to keep me fully informed, and I will also go to these advisory groups to bounce off ideas of additional initiatives I might want to role out to get their feedback on them first. So agents and brokers will be essential to me as insurance commissioner.

What should agents and brokers consider in their voting decision?

Bustamante: The process of providing insurance and all the lines of insurance in California is a very difficult process, and I have the experience in government to be able to deal with those issues. I’ve done major public policy in this state and worked diligently to be able to understand how it works. I’ve spent 20 years of my life doing this. I hope that the experiences that I’ve attained over the years and the kind of record that I have established to be inclusive in my deliberations. It’s a record that I’m proud of. I would also like for people to consider the fact that I have prepared my entire life to do this job.

Poizner: The insurance commissioner is the most important policymaker in California, and you need someone at the helm of the large California Department of Insurance with business skills to help create competitive, healthy insurance markets here. I have been running companies for 20 years, and I know how difficult it is to make a payroll in California. I know how important it is to create competitive healthy markets, and I am going to use the leadership skills I have developed running companies to more effectively run the California Department of Insurance.

Steve Poizner

Poizner is a civic-minded inventor and entrepreneur, and founder of SnapTrack in Silicon Valley. In 2001, he was tapped to serve in the non-partisan White House Fellowship program in Washington, D.C., arriving only days before the 9/11 terrorist attacks. He served as director of critical infrastructure protection in the National Security Council. When he returned to California, Poizner sought new ways to give back to his community. Passionate about improving the quality of the state’s public schools, he volunteered to teach American Government at Mount Pleasant High School in east San Jose, Calif., and won “Rookie Teacher of the Year.” For more information, visit www.joinsteve.com.

Cruz Bustamante

Bustamante said he rose from the fields of California’s Central Valley and grew to become assemblyman, speaker of the assembly and then California’s Lieutenant Governor. He attributes his success to family and community lessons in work, honesty and loyalty. In the Legislature and Lt. Governor’s office, Bustamante focused on education, the environment, health care and consumer protection issues. His work focused on reducing class sizes in California schools, enacting a $1.7 billion middle-class tax cut, reforming welfare and lowering student fees at state universities and colleges. For more information, visit www.ltg.ca.gov.

Topics California Carriers Fraud Agencies Legislation Workers' Compensation Market