California Insurance Dept. to Cut 95 Jobs

Faced with a significant drop in revenue, state Insurance Commissioner Chuck Quackenbush said Tuesday that the department will lay off 95 workers, primarily in its consumer services division, and he hinted that other cuts may occur as part of a streamlining effort.

The layoffs, which will mostly involve employees in Los Angeles, were immediately denounced by insurance industry critics as something that will weaken oversight of insurance companies at the expense of consumers.

“He’s cutting back the services that are at the very core of the agency,” said Harvey Rosenfield of the Prop. 103 Enforcement Project, a consumer advocacy group focused on insurance issues.

Rosenfield accused Quackenbush of failing to push hard to find other funds to maintain the consumer services.

The department said it tried but failed to find enough support and therefore had no alternative but to make deep cuts.

The department said a combination of legal settlements and last-minute budget restraints by the Legislature forced it to make the cuts, which were much deeper than expected earlier this year.

Although the cuts will slow the response to consumer complaints, department officials maintain that the reductions will not have any substantial long-term effect.

“Though this will force us to lay off valuable employees, we will work . . . to simplify and streamline our activities, striving to improve our service to consumers, agents and companies alike,” Quackenbush said in a statement.

The department’s consumer services division handles a wide variety of duties, ranging from simple consumer questions on its telephone hotline to in-depth investigations of disputes and consumer complaints over insurance.

The estimated $7 million a year it takes to run the consumer services division was raised in part through fees charged to insurance companies to cover the cost of investigating consumer complaints. In addition, the division relied heavily on revenues related to the oversight of Prop. 103, the 1988 ballot initiative that overhauled the state’s regulation of the insurance industry.

However, both those revenue sources have been cut off as a result of two lawsuits supported by the insurance industry that successfully challenged the way the money was used. Because of one of the lawsuits, the department is required to refund insurance companies $6.6 million in fees.

The department had counted on tapping into a pool of unclaimed insurance refunds to close its funding gap. Instead, the Legislature diverted the money to the general fund and capped the department’s spending, according to department officials.

In addition to the consumer services division, the layoffs, which will affect less than 10% of the department’s total work force, will also affect workers in the investigations, computer systems and other business services operations. The layoffs are expected to take place in September.

As part of a review of operations, the department’s legal division, which writes regulations, could also face some changes and cutbacks.