Perspectives on Insurance Reform : Insurers Mount a Stealth Campaign : The industry, thwarted by voters and the courts, is now trying to buy the office of insurance commissioner.

Californians don’t ordinarily get to vote on a ballot initiative twice. But when it comes to reforming the auto insurance system, next Tuesday’s election will provide the opportunity to cast another vote for lower and fairer insurance rates.

Proposition 103, the insurance measure approved by the voters in 1988, mandated rollbacks in auto, homeowner and business premiums, required prior approval of all rate increases and eliminated the unfair territorial rating system. Then, to guarantee that these reforms would be implemented properly, the initiative made the insurance commissioner accountable directly to the public through election.

The six years since 103’s passage have proved the wisdom of that policy. Between 1988 and 1990, Commissioner Roxani Gillespie, appointed by Gov. George Deukmejian, did everything she could to stymie the law. But when John Garamendi became the first elected commissioner in January, 1991, he ordered all rates frozen until insurers paid the rollbacks and issued a series of pro-consumer regulations to govern not only the rollback process, but also future requests for rate increases.

Garamendi’s rules--the strongest in the nation--prohibit insurers from passing through to policyholders excessive and unjustified expenses, such as multimillion-dollar executive salaries, lavish agents’ commissions and political contributions. Insurance companies that operate efficiently and comply with the law can earn a fair, but not excessive, profit.

In Garamendi’s hands, 103 has worked. Despite constant lawsuits by insurers, more than 6 million Californians have received more than $833 million in rollbacks. And, ironically, the insurers’ stalling has delivered greater savings than 103 itself called for. The rate freeze has saved consumers an average of $1 billion per year since 1988. In 1989, when 103 took effect, California had the seventh-fastest-growing auto premiums in the nation. Now it ranks 48th. The average auto insurance premium has actually dropped in California since 1989.

Anxious to portray 103 as a failure, the industry claims that the national recession, not insurance reform, is responsible for the reduction in premiums in California. If so, then why did premiums rise an average of 20% everywhere else in the country?

While Garamendi has occasionally stumbled--a hasty endorsement of no-fault insurance in 1991; a few too-generous rollback “settlements”--he has set the standard by which future commissioners will be judged. The California Supreme Court’s decision two months ago upholding Garamendi’s regulations cleared the way for another $1.5 billion in rollbacks and equal savings every year from now on. In sweeping aside the insurers’ lawsuits, the court affirmed that it was up to the insurance commissioner to determine how best to carry out 103’s reforms. And that, of course, is why the insurance industry has already spent more than $2 million in an all-out campaign to elect a pro-industry insurance commissioner, a little-known member of the Assembly, Charles W. Quackenbush (R-Cupertino). Quackenbush is an avowed opponent of 103 who says that the “free market” is best for consumers. He would push “deregulation” of insurance as far as he could go and return us to the pre-103 days of 20% annual insurance increases. As commissioner, Quackenbush could force consumers to reimburse the insurance companies for what they spent to elect him.

Insurers are trying hard to disguise their campaign for Quackenbush. For example, Allstate employees, using company phones to call 100,000 voters urging them to support Quackenbush, identified themselves as members of a police union. Insurance agents and brokers have held “$99 fund-raisers” in order to skirt campaign disclosure laws: Contributions of $100 or more must identify the donor’s occupation.

Quackenbush himself refuses to make public appearances or debate Art Torres, his underfunded Democratic opponent. Indeed, Quackenbush’s TV ads don’t even mention the post he is running for, or insurance matters at all. They focus on this year’s political shibboleth, street crime, a problem over which the insurance commissioner has zero authority.

Having lost at the ballot box in 1988, and, finally, in the courts, the insurance industry is desperately trying to buy back the office that it once controlled and that now belongs to the people. The insurers hope that the combination of overwhelming amounts of political money and a stealth campaign will obscure the stark differences between the two candidates, and the billions of dollars at stake in next week’s election. But the public isn’t likely to forget the importance of the office it created just a few years ago. No other elected official affects the public’s pocketbook so directly. The robber barons of the insurance industry spent $80 million to stop reform in 1988 and failed. They always underestimate California voters.