True Test for Garamendi Lies Ahead

Little more than 100 days after taking over as California’s first elected insurance commissioner, John Garamendi has demonstrated a determination to reshape the image of the Insurance Department, casting it as an advocate for consumers rather than a patsy for the industry.

In seizing the faltering Executive Life Insurance Co. of California earlier this month, the commissioner, by his own estimate, provided “the most visible demonstration that I am a man of action, that I’m willing to make the hard decisions to take action to protect people.”

In the process, Garamendi, 46, a rancher and former legislator from the Sierra foothills, has emerged for the moment as the most visible Democrat in state government after Assembly Speaker Willie Brown. This follows a series of well-publicized moves to crack down on shoddy insurer practices and begin obtaining at least some of the premium rollbacks promised by Proposition 103.

His performance in these early days in office even has inspired speculation in some circles that he could become his party’s candidate for governor in 1994.

At the same time, however, experts on the insurance issue and even some of his own staff note that the steps he has taken so far have been the easiest and most obvious. The real test, they say, is whether he actually will be able to deliver rebates to the customers of California’s insurance companies, and then hold down premiums.

“I think he’s done a great job thus far in setting some priorities,” said Will Glennon, legal analyst in Sacramento for the California Trial Lawyers Assn. “Can he get the bureaucracy turned around and effectuate real changes? That’s still a big if.”

While Garamendi’s friends wonder whether he can maintain his momentum, many insurance executives are digging in their heels against the commissioner, making plans to continue the industry’s successful post-Proposition 103 campaign to stymie reforms through protracted litigation.

“Late fall or winter, we’ll be in court contesting his rollback orders,” said the vice president of one big auto insurance seller last week. “He’s got plenty of publicists working for him. Now, he’s going to need some good people with insurance expertise.”

On the day Garamendi was inaugurated, he said he would grant no more rate increases until insurance companies started paying Proposition 103 rollbacks. But that was not the dire threat it might have appeared. Days before his predecessor, Roxani Gillespie, left office, she handed many of the companies hefty rate increases that would last them a long time.

The next day, however, Garamendi struck down many of Gillespie’s rate regulations, saying that he would write his own, which, presumably, would be harder on the companies. Later, he suggested he would review the increases that Gillespie had authorized, returning the excess to customers in “a new wave of rollbacks.”

The plan to write new regulations--after public hearings only a quarter as long as those held by Gillespie--was recently upheld in a Los Angeles court.

Garamendi said the decision put him on schedule for delivering rebate checks to millions of consumers this summer. But in the next breath he cautioned that insurer lawsuits from what he called “the gang of 84 companies,” could hold that up indefinitely.

Meanwhile, the commissioner has been pursuing other quick fixes that symbolize his determination “to turn the department around, from one that served the industry to one that serves the consumer.”

Gillespie, according to a court determination, failed to act on consumer complaints to the department’s hot line. Garamendi, by contrast, has directed that reports on the issues that consumers are angriest about be relayed to him for action whenever there is a surge of complaints on any subject. He changed the toll-free hot line number to an easier to remember “1-800-927-HELP.”

When calls came cascading into the hot line from customers of the FGS insurance agency saying they had been informed by the Department of Motor Vehicles that the liability policies they had purchased failed to satisfy state minimum insurance requirements, Garamendi moved swiftly.

For three years, Gillespie had been trying fitfully to shut down FGS without success. This time, Garamendi sent lawyers into court against the company in a series of actions that led within weeks to its being placed under state conservatorship. He also warned that FGS was only the first company on a list of 10 he would move against. He declined to name the others.

Meanwhile, following through on a campaign pledge to crack down on companies that failed to pay claims in a timely manner, Garamendi filed charges against a big Northern California auto insurer, the California State Automobile Assn. The company was ordered to show cause why it should not be compelled to change its practices. A hearing is pending.

Garamendi also appeared beside Los Angeles County Dist. Atty. Ira Reiner recently to disclose arrests in a major auto accident fraud scheme. As usual, the commissioner’s language at the news conference was colorful, even bombastic. “We’re telling the gamblers who defrauded the state of California . . . and the people who recruited them . . . ‘You’ve rolled your last dice; you’ve crapped out,” he said.

Week by week, news conference by news conference, Garamendi has appeared the consumer advocate, prompting even militant Proposition 103 author Harvey Rosenfield, who has had many doubts about the commissioner, to comment: “He could become governor, if he took advantage of the opportunity he has.”

Such talk makes Garamendi nervous, as do comparisons with Edmund G. (Jerry) Brown Jr.’s efforts to establish a gubernatorial candidacy 20 years ago. In those days, Brown was using the secretary of state’s office to build his image as a reformer.

“I hate to be compared to Jerry Brown,” Garamendi said in an interview last week, suggesting that the insurance commissioner’s job is much more substantive than the duties performed by the secretary of state.

“I have the most exciting, challenging and difficult job of any of the statewide offices except for governor,” he said. “I have to produce every day. “I’m held accountable every day. I’m dealing with direct problems. . . . “As to the future, I suspect I’m on the most slippery stepping stone, anyway. At any point, on one of these very important and critical issues that confront people, I could fail.”

Garamendi’s staff is conscious of the “slippery” way ahead. And some think it will grow far more treacherous as the commissioner begins to deal with proposals for fundamental reform in the auto and health insurance system--where prices are high and millions of people defy the law and go without coverage.

The main options for cutting auto insurance prices, for example, would be reducing agents’ commissions, slashing the role of attorneys and their fees, slicing company profits and permitted expenses, and curtailing payouts to customers by stepping up fraud investigations or ending most payment of damages for emotional losses. Decisive action in any of these areas would be reflected in lower premiums, although all these options are politically difficult.

Garamendi already has ruled out reducing the lawyers’ profits through adoption of no-fault insurance, and a recent modification he made in his proposed new rate regulations indicates that he is not eager to take on the agents either.

“It’s going to be real hard to get rates down and money back in people’s pockets without stronger reform, and that’s going to be tough,” said a senior Garamendi adviser who asked not to be identified.

At the moment, most of the controversy centers on a proposal by state Sen. Patrick Johnston (D-Stockton) for a no-frills, no-fault policy, initially priced at $220 a year, that would replace the present state-required minimum liability insurance.

Minimum liability policies now cost $1,000 or more in many urban areas and pay nothing directly to drivers who buy them. Under no-fault, a driver collects for his medical treatments and some property damage from his own insurer, regardless of who caused the accident, up to certain limits. Beyond those limits, a driver can sue. Now, drivers can sue for all losses.

Johnston’s bill has been endorsed by Republican Gov. Pete Wilson and insurers are pushing it. The trial lawyers opposing it contend that its payouts to victims would be paltry and take away cherished legal rights.

Garamendi, who once authored no-fault legislation, did an about-face during his campaign for commissioner, proclaiming no-fault as politically unfeasible. He says now he is working with Speaker Brown, a long-time ally of the trial lawyers, on an alternative to it.

Many details of Brown’s latest proposal have yet to be worked out. An earlier Brown bill, adopted two years ago by the Legislature, was vetoed by Gov. George Deukmejian. Insurers maintain that without no-fault, no reform proposal is financially viable, and a Brown-Garamendi bill that does not contain it could face a Wilson veto.

“I’m advocating a comprehensive approach toward low-cost insurance, one that does include (legal) reform, as well as one that includes (limiting company) administrative overhead,” Garamendi says. “No-fault could shoot up costs. What I want to try to accomplish is to judge the proposals and analyze as to whether they actually will reduce costs.”

But, with such vague pronouncements, and the poor prospects for the Brown approach, the commissioner already is coming under fire.

No-fault advocate Harry Snyder, West Coast director of the Consumer’s Union, said last week that Garamendi may represent “more press releases than substance.

“The important thing is, he hasn’t actually done anything to improve the situation in a fundamental way,” Snyder said. “He hasn’t shown any real leadership. . . . He’s supporting Brown’s bill and everybody knows it’s a piece of trash. That doesn’t augur well. It’s a waffle.”

Garamendi recently sat in for Brown, chairing a private meeting in the Speaker’s office to examine reform options. But he promptly clashed with no-fault advocates who charged that he had a closed mind on their proposals and wouldn’t even discuss them.

“They said it was an open meeting, but when we got in there, he had a two-page agenda,” said John Gamboa, head of the Latino Issues Forum, who has maintained for two years that the most feasible insurance relief for low-income minorities would be no-fault. “He didn’t want to discuss anything but Willie’s bill.”

But state Sen. Alan Robbins, (D-Tarzana), a no-fault advocate and chairman of the Senate’s Insurance Committee, gives the commissioner’s role a more favorable assessment.

“John Garamendi is California’s first political insurance commissioner,” Robbins said. “He has basically done a good job in his first 100 days of establishing the concept that to truly solve the big problems will require use of the political process, bringing together the governor as part of the deal, and working out solutions that don’t give one group everything they want.

“Certainly, no one expected him to solve all the problems in the first 100 days,” the senator said.

But what if there are no solutions in four years?

Tom Conneely, president of the Assn. of California Insurance Companies, a leading industry lobbyist in Sacramento, said that regardless of how a broad legislative reform package fares, public disappointment may set in with Garamendi if the rollbacks don’t come through.

“I would say that he’s projected an image of being decisive,” Conneely said. “On the negative side of that, I would say he has made pledges that I think are going to be very difficult to fulfill.”

Garamendi reacted philosophically to both criticism and commendation.

“This is a four-year test,” he said. “We’re just through the first five minutes of the first quarter, and I think we’ve been attacking problems on every front. . . . We’re not going to be perfect. We’re going to make a lot of mistakes. But this is a four-quarter game, four years, and we have our goal clearly in mind.”