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May 13, 2008 - 01:00 PM
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Schwarzenegger Administration Should Reject Phony Emergency Declared by Insurance Commissioner Poizner to Help Insurers
Consumer Advocates Call On Office of Administrative Law To Resist Politics, Protect PublicSanta Monica, CA -- The Schwarzenegger administration should reject the "emergency" changes to the Proposition 103 Rate Regulations filed by Insurance Commissioner Steve Poizner last week after virtually no public scrutiny, consumer advocates said in a letter to the state Office of Administrative Law (OAL) sent Monday.
There is no "immediate threat to the public health or safety" and therefore the Poizner changes, which will lead to rate increases for auto, homeowner and earthquake insurance, should not go into effect until they are subject to open review and public hearings as required by Proposition 103, the non-profit Consumer Watchdog organization said. OAL is responsible for reviewing regulations to ensure they comply with state law.
Read Consumer Watchdog's letter here.
"Commissioner Poizner declared an emergency in order to avoid scrutiny of the giveaway to insurance companies that is contained in these regulations," said Harvey Rosenfield, author of Proposition 103. "Last we checked, insurance companies wanting more money from consumers does not qualify as an emergency."
The Proposition 103 Rate Regulations govern the rates that insurance companies are allowed to charge policyholders. The changes proposed by Commissioner Poizner reverse decisions made by Poizner's predecessor, Commissioner John Garamendi, after two years of extensive analysis. In a ten-page letter to Poizner last week urging him to withdraw the regulations, Consumer Watchdog pointed out that key changes were adopted, sometimes nearly verbatim, from proposals made by the industry to Poizner (and rejected by his predecessor). Read the letter to Poizner here.
In its letter to OAL, Consumer Watchdog said Commissioner Poizner had failed to offer any legitimate basis for derailing the usual process of public scrutiny in favor of proposals largely developed behind closed doors and taken, in some cases verbatim, from insurance industry proposals that had been rejected by the previous commissioner. Poizner claims that his changes are needed immediately so that they will apply to rate applications that insurance companies must submit by July 14, 2008, to comply with rules requiring auto insurance companies to base motorists' premiums on driving safety record rather than zip code.
In a point-by-point analysis, Consumer Watchdog explained that in fact there is no emergency:
1. Under state law, "emergency regulations" are only permitted in "a situation that calls for immediate action to avoid serious harm to the public peace, health, safety, or general welfare." There is no such threat.
2. More than 1,000 insurance rate filings have been conducted under the current Prop 103 Rate Regulations in the past year, including a $250 million rate cut for Allstate customers, proving that the present regulations are working properly and public welfare will not be compromised if changes to those rules are not in place before July 14.
3. The July 14 deadline only applies to auto insurance rates, yet many of Commissioner Poizner's proposed emergency changes do not even apply to auto insurance, such as one rule that will allow earthquake and medical malpractice insurers to increase the amount of reinsurance costs they can pass through to policyholders.
4. The Department had nearly two years to conduct proper hearings on changes prior to the July 14, 2008 deadline, which has been in place since Commissioner Garamendi established it in the summer of 2006. In fact, Commissioner Poizner held a "workshop" to discuss the regulations in April 2007, but did not announce most of the anti-consumer provisions that were sent to OAL until April 2008, at which time the Commissioner held a single half-day public workshop. Several of the most anti-consumer changes were made after that workshop.
"Commissioner Poizner has failed to come close to demonstrating any harm to the public that would justify the adoption of substantial amendments to the Rate Regulations on an 'emergency' basis," Consumer Watchdog wrote in its letter to OAL. "His two-page explanation of the 'emergency' is full of unsubstantiated and vague allusions to the difficulty the industry and the California Department of Insurance (CDI) will face if the proposed changes are not made right away. It also never describes how the proposed regulations will actually address the alleged 'emergency.'"
OAL Must Resist Politics
Consumer Watchdog is calling on OAL to conduct its inquiry into whether an "emergency" exists on an objective and non-partisan basis, and ignore the politics and pressure from the insurance industry that led to the proposed changes. The group noted that the proposed emergency regulations were signed by the OAL's prior director Bill Gausewitz, himself a former insurance lobbyist and now a lawyer at the Department of Insurance. Consumer Watchdog also pointed to Governor Schwarzenegger's Cabinet Secretary Dan Dunmoyer as a cause for consumer concern. Dunmoyer, who serves as the Governor's liaison to state agencies, spent more than a decade as the insurance industry's top lobbyist in California. His former association, Personal Insurance Federation of California, lobbied aggressively for the rule changes that were included in Commissioner Poizner's emergency proposal. Consumer Watchdog said that deferring to industry interest and rubberstamping these emergency regulations would be an abdication of the OAL's duty to protect the public from overreaching actions by state agencies.
"Californians' need the officials at the OAL to provide protection from an unnecessary and illegal declaration of emergency by the Insurance Commissioner. Political considerations must be ignored and the agency will have to demonstrate independent judgment if it is to have credibility as an arbiter of the law," said Douglas Heller, Consumer Watchdog's Executive Director.
If enacted, the emergency rule changes will immediately:
* Allow insurers to increase their rates in order to earn profits far in excess of what is justified under Proposition 103.
* Permit insurers to game the regulatory system by inflating the projected amount of payments of future claims they can pass through to current policyholders.
* Allow insurers to buy unregulated "reinsurance" and then pass all such expenses on to policyholders, while denying consumers the right to challenge the cost of the reinsurance or any conflicts of interest or kickbacks.
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Consumer Watchdog, formerly The Foundation for Taxpayer and Consumer Rights, is a nonpartisan, nonprofit organization.
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