Placing premiums on integrity

It is said we should be careful what we wish for because we might just get it. That adage seems particularly applicable to the state insurance commissioner’s office. Two interim commissioners have manned the office over the last year and a half, giving by most accounts a sense of low-key calm absent since this became a political post.

Neither man has expressed an interest in seeking the seat permanently and, as such, the bidding has opened again, with the early front-runners being heavily courted—and financed—by big money interests from both the insurance and legal arenas. As voters prepare to cast their ballots in the March 5 primary, one astute observer is wondering out loud if this might be a prime example of an elected office that should not be.

“I believe that the insurance commissioner should not be an elected office,” says Clark Kelso, noted professor at McGeorge School of Law and, more important, the first interim commissioner after a disgraced Chuck Quackenbush was forced to resign.

The recent calm in this regulatory office has belied the politically charged chaos that has swirled around the post since 1988, when it became an elective office, rather than one appointed by the governor, as it had previously been.

We have had two elected commissioners—one Democrat (John Garamendi), one Republican (Chuck Quackenbush)—and both tenures were marred by political scandal, not to mention major earthquakes, floods, fires and other events that trigger big insurance payouts and test the office’s regulatory resolve.

State and federal investigators are expected next week to announce the results of their investigation of Quackenbush, whose administration went easy on insurance companies after the Northridge earthquake in exchange for payouts that benefited him politically, one of many accusations of abdicating his regulatory role. Sources reportedly say no criminal charges will be filed against Quackenbush.

Garamendi, the first elective commissioner, has his own legacy of fiscal malfeasance. After taking over the failed Executive Life Insurance Company, Garamendi’s office sold the company to a group of French investors. Not only did he accept millions of dollars less than the company’s real value, but the investors turned out to include French government officials, a violation of American investment laws. Some of the many lawsuits filed over the matter are still active today.

Critics contend the office was better managed before it became politicized.

“Making this an elected position was intended to give the people some power over the industry and to remove the possibility of the commissioner simply being a shill for the governor,” says Kelso. “But now, the office is now seen by too many candidates not as an incredibly important regulatory position but as a high-profile steppingstone to other, more powerful statewide offices.”

While such ambitions are common to elected officials in this era of term limits, Kelso notes the need for official impartiality in watchdogging an industry that bills Californians for $85 billion a month. The stakes are high, both for industry and the public.

The influx of industry money into the commissioner race is being highlighted by the Foundation for Taxpayer and Consumer Rights (FTCR), the original group that pushed for the transformation of the office in 1988. FTCR recently introduced what they call the “Quack-o-Meter” gauging the industry’s contributions to candidates.

The Meter was started as a way of protesting the large sums of cash flowing to Assemblyman Tom Calderon, D-Montebello, who has raked in almost $800,000 from insurance companies so far in his campaign to win the Democratic nomination.

Calderon is not the only candidate raking in big bucks from special interests, but he is the only one openly accepting cash from the insurance industry. A chief rival, former Orange County Assemblyman Tom Umberg, has been busy mining the various California attorneys groups for his own war chest, while former commissioner Garamendi is confining himself to business and labor resources who have shown him support in the past.

Neither Umberg nor Garamendi has taken any significant insurance contributions. None of the three Republican candidates—Wes Bannister, Gary Mendoza and Stefan Stitch—have dipped into the insurance well either, nor have any of them made much of an impact on the race, lacking the funding and name recognition of the Democrats in this race.

While Kelso is ready to end the experiment of this being an elective office, other high-profile reform advocates aren’t so sure.

“A commissioner elected by the people is absolutely essential,” says FTCR’s Doug Heller. “Prior to 1988 every insurance commissioner was from the industry. It was a way for the governor to pay the industry back for the money they would pour into his campaign. They didn’t care about anything but getting the chance to regulate themselves, which is why by 1988 California had the worst insurance system in the nation.”

Current commissioner Harry Low admits to being no fan of the system, but he hesitates to say we should return to the old method.

“The history has clearly shown that having this position as an elected office has not worked out very well,” said Low. “I do have my doubts about any regulatory position being filled by an elective process, especially in California where it takes so much money to get elected to a statewide office, but I think we do need to test this a little further. It is still a little bit too early to say this process is bad or just won’t work.”

Heller says the election process is responsible for discovering Quackenbush’s misdeeds in the first place.

“Being an elected office allowed for the people of California to take action against Quackenbush,” he says. “There was a paper trail for us to follow. As an elected official he was accountable to the people who put him there, not just to the governor.”

Robert Cartwright Jr., president of the Consumer Attorneys of California (CAC), the main lobbying group for trial lawyers in the state, is firmly in agreement.

“The system is not perfect,” he says. “But the benefits far outweigh the negatives.”

If it remains an elective office, some say reforms are needed to remove the tainted appearance of industry buying itself a regulator.

Heller says the best way to ensure against that view is to join with states like Washington and impose a ban on candidates for the position taking insurance industry contributions. Ironically, Calderon voted for a bill that would have done just that, but the bill failed. Now, he is by far the largest recipient of industry cash in this year’s campaign, something he makes no apologies for.

“Getting elected to a statewide office is very expensive, and we don’t have the resources of the other candidates,” says Calderon spokesperson Valerie Martinez. “We have said from the beginning that we will take contributions where we can get them, but that does not mean Thomas Calderon can’t be an impartial regulator.”

Heller and Cartwright vehemently disagree.

“I think every dollar from the insurance companies that a commissioner candidate gets creates a conflict of interest,” Heller states. “Those companies expect to be paid back politically, and they will demand it.”

“Having a candidate take extreme amounts of money from the industry he is asking to regulate is like putting the fox in charge of the henhouse,” Cartwright adds.

Regardless of who becomes the next insurance commissioner, he will face a daunting task. Keeping such a massive industry working together will not be easy.

“There are some very serious issues the next commissioner will need to deal with,” Low said. “The move toward nationalization of the regulation of financial institutions, and how to maintain our state’s interests in the process, will be very big. Workers comp is another one, as is the effect of terrorism on the industry.”

“We also have to remember that it is a good thing for the people of California if the industry is healthy," he added. "The key is finding the balance that best serves the interests of both the companies and the public."