Backward Steps Won’t Fix Insurance Scandal

The corruption scandal now engulfing Insurance Commissioner Chuck Quackenbush will soon become a test of the California Legislature’s own integrity.

That Quackenbush has betrayed the public’s trust is beyond dispute. When Insurance Department staff recommended that State Farm and several other insurers pay more than $3 billion for their mishandling of Northridge earthquake claims, the commissioner made the companies an offer they could not refuse: Pay no fines and nothing to policyholders but make tax-deductible donations to a nonprofit foundation he would set up. This money, a total of $12 million, was used in ways that benefited Quackenbush personally, including a $3-million TV ad campaign that ostensibly was to promote earthquake safety but that featured him in a self-promotional way, and a $500,000 gift to a Sacramento organization on whose board he was a member. Two of these insurers--Allstate and Fireman’s Fund--also gave the commissioner $50,000 and $20,000, respectively, in political contributions, which he used to pay off campaign loans made from his wife’s business and from a second mortgage on their home.

This is certainly enough evidence to justify an investigation under Article IV of the California Constitution, which authorizes the Legislature to remove a public official for “misconduct in office.” Indeed, legislators have scheduled two hearings on Quackenbush’s actions and a third hearing to review the insurers’ claims abuses. Yet there are troubling signs that the Legislature lacks the political will to pursue a serious inquiry that could lead to impeachment.

The most disturbing indication is the proposal by some lawmakers that the Legislature put a measure on the ballot to return the office of commissioner to an appointed position. This is a profound insult to the voters.

After all, it was the insurance lobby’s historic chokehold on the Legislature, and the inaction of Roxani Gillespie, an industry executive appointed insurance commissioner by Gov. George Deukmejian, that led voters to pass Proposition 103 in 1988. To ensure that the insurance commissioner enforced the measure’s rate reductions and reforms, Proposition 103 made the post accountable to the voters by election.

Under John Garamendi, the state’s first elected insurance commissioner, the industry paid $800 million in refunds, and a freeze on rate hikes saved Californian motorists $8 billion. Unable to block the law at the ballot box or in the courts, insurers decided to back a commissioner who would stop enforcing it. Since first running in 1994, Quackenbush has collected more than $6.4 million in campaign contributions from insurers; he has consistently ignored or evaded Proposition 103, such as its requirements that premiums be based on driving safety records rather than ZIP Code and that insurance companies be prohibited from making excessive profits.

Making the commissioner an appointed position now would simply reward the insurers for having corrupted the office. They would have just as much pernicious influence as they do today, only the money trail would be harder to follow: Their donations instead would go to the governor, who would have an incentive to repay their generosity by appointing an insurance executive loyal to the industry. This occurred routinely prior to Proposition 103.

The danger is that this retrograde proposal will become the Legislature’s sole response to the Quackenbush scandal. That would protect the insurance companies by diverting lawmakers from an investigation into the commissioner’s conduct and that of the insurers involved. It would provide cover for legislators who want to appear as if they are responding to the scandal without offending their insurance benefactors.

The industry no doubt would spend lavishly to win approval of the Legislature’s measure. Imagine television ads, sponsored by some phony group calling itself “Californians for an Independent Insurance Commissioner,” accusing the elected commissioner of being bought and paid for by the insurance companies, and urging that it become an appointed post. In fact, the ads would be financed by the insurance companies themselves. This is deeply cynical, but precisely the strategy they employed to repeal a 1999 law that gave consumers the right to sue them for failing to handle claims fairly. Several major insurance companies--in fact the same ones that Quackenbush’s staff accused of routinely low-balling and mishandling claims--took the language of those laws, put it on the March 7 ballot and spent $50 million to successfully convince voters to reject the law.

Like so many other political scandals, the Quackenbush revelations have exposed profound flaws in the democratic process. Yet when democracy doesn’t work right, the answer is not to get rid of democracy. It’s to strengthen it, in this case, by prohibiting elected officials from accepting money from the industries they regulate.

Lawmakers also should establish a consumer watchdog organization, supported by voluntary donations from policyholders, to oversee the insurance commissioner.

These reforms are pending in Sacramento. But they won’t resolve the current crisis. The Legislature’s first priority is to demonstrate to scandal-weary voters who have lost faith in government--and to other officials who might contemplate breaking the law--that the Legislature is competent and independent enough to root out and punish corruption.