Garamendi’s Return Bid
By Robert Warne - December 24, 2001John Garamendi is ready to set up shop in Sacramento once again. A man with an extensive background of accomplishments, when asked if he’s in full swing campaigning for the office of California's Insurance Commissioner replied, “I’m always in full swing.”
Garamendi is well acquainted with the Insurance Commissioner position from the inside out. His successor, Chuck Quackenbush marred the commissioner’s seat during his scandalous tenure. “Do you agree with me that after dedicating four years to building an excellent organization, and then watching someone tear it apart, there is a very natural desire to return to rebuild?”
As the first elected insurance commissioner he oversaw insurance operations for California’s largest disasters in recent years including the Loma Prieta and Northridge earthquakes, as well as the Oakland Hills, Laguna and Malibu fires.
adjustercom.com recently talked with Garamendi about his latest bid for public office. The opportunity allowed us to ask a few questions pertaining to his role as insurance commissioner from 1991-1995 and his role if re-elected.
a: Do you think it was a mistake for the California Legislature to repeal the state’s minimum rate law for workers’ compensation?
G: The elimination of a minimum rate lead to a series of months and years of low rates that created below level reserves to cover present and future losses. It was repealed in the first place to prevent this from happening.
a: What are your views regarding regulation?
G: The purpose of the Department of Insurance (DOI) is to protect the consumer through appropriate, timely and clear regulations. It’s not all about thou shall and shall nots. A big part of it is providing services such as licensing, contracting and administration. A healthy insurance market is well dependent on the condition of the DOI and its ability to provide innovative solutions and the best products possible.
a: Do you see room for improvement in the rules and regulations that affect the claims handling process?
G: As insurance commissioner I will set up a series of task forces (committees) that will analyze all the sectors of insurance and make recommendations to address many of the issues of insurers.
a: Would you bring continuity to the office by seeking consecutive terms?
G: Yes.
a: In retrospect, what do you think about the Executive Life deal?
G: There’s three key points I’d like to make about the Executive Life deal.
"One, we worked it out that 92 percent of the policyholders received 100 percent of what they were contracted for within a year,” said Garamendi. “With that kind of certainty, the remaining 8 percent received 88-90 percent. Two, Executive Life’s portfolio of assets was about 60-70 percent junk bonds. About 50 percent of those bonds were in default or restructuring. There was no way the Department of Insurance could, or if it wanted to, have the resources to manage that. From three successive bids the highest offer was chosen. The judge even did a fourth bid and there weren’t any higher offers. The third point is the fraud perpetrated by Credit Lyonnais and its affiliates that lied to the Federal Government and to regulators to pull off the deal.”
a: Can a workers’ compensation benefits increase and a rate reduction be achieved concurrently?
G: Can the system be made more efficient, then the answer is yes. If we can improve the system’s efficiency then we can have a benefits increase and keep rates low. We did it in the early 90’s by streamlining the administrative process and by eliminating fraud.
If elected, Garamendi will immediately have his hands full of a variety of emotionally charged issues. Workers’ compensation is one of the hot issues that will require immediate attention.
Garamendi’s game plan consists of three key elements that address the inefficiencies of the current workers’ compensation system. First, the market needs to be stabilized by providing a way to assure premiums are adequate to pay current and future claims. Second, would be to enact a reasonable benefits increase. And third, the whole workers’ compensation delivery system needs to be modernized in concert with deregulation, explained Garamendi. “Because benefit increases are a matter of simple equity, they should not be tied to changes in the system.”
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