Policy on Insurance Should Put a Premium on Service to the Public

Last week, California Insurance Commissioner Chuck Quackenbush blamed me for the scandal that has now engulfed him. I admit I was surprised: I wasn’t around when Quackenbush let insurance companies escape as much as $3 billion in fines and restitution to policyholders in exchange for $12 million in payments to a fund he used to further his own political ambitions. Nor was I present when Quackenbush told legislators that he knew nothing about the expenditure of these funds, only to be contradicted by a videotape of himself. Had I been there, I would have said: “Stop, Chuck, stop.”

There are two accusations, however, for which I must answer. Quackenbush charged that Proposition 103, the voter-approved insurance reform initiative I wrote, made his office a powerful elected position and thus subjected him to the temptations of influence-peddling. He also accused the Foundation for Taxpayer and Consumer Rights, which I head, of suing the insurance companies he let off the hook for their mishandling of Northridge earthquake claims. To these charges, I plead guilty: I have been an aggressive advocate for consumers. If only Quackenbush had been the same, he wouldn’t be facing calls for his resignation.

Quackenbush’s present predicament was preordained by the pledge he made to insurance companies shortly after he was elected in 1994. He told a trade publication: “My administration is going to seem like heaven” to the insurance companies. Quackenbush kept his promise. He consistently refused to enforce Proposition 103’s provisions that protect the public against insurance profiteering, charging higher rates in certain neighborhoods and low-balling claims. The result: a regulatory climate in which insurance companies could brazenly cheat and abuse their policyholders, secure in the knowledge that the public official with the power to prevent or punish their misconduct would do neither.

Nobody could have prevented the 1994 Northridge earthquake. But a resolute commissioner could have averted the disastrous behavior of the insurers in its aftermath. The fires of the 1991 Oakland Hills firestorm were barely out when then-Insurance Commissioner John Garamendi hauled the insurance companies into his office and told them: You will pay the claims promptly, or I will bar you from doing business in California.

Using the power of his office, Garamendi forced insurers to make good on their policies. Within a year, 92% of the claims were settled.

But faced with having to write some big checks after the Northridge quake, insurers knew they could count on Quackenbush to stay cool. As a result, for the past six years, tens of thousands of policyholders have found themselves fighting their own insurers for payment. It’s not as if Quackenbush was unaware of the problem. Complaints to his office from policyholders requesting assistance soared in 1995 and 1996--until he slashed his consumer services staff by 50% at the suggestion of an industry “study team” and began “outsourcing” agency investigations of insurers to accounting firms that also work for insurers. Quackenbush’s singular contribution was to sponsor bailout legislation in Sacramento that shifted the risks of future earthquakes to a new state agency, while the profits go to insurance companies selling half the coverage for twice the price.

The commissioner’s actions forced outraged policyholders to turn to the courts for help. Like many politicians indentured to corporate interests, Quackenbush has been a loud critic of lawsuits and the lawyers and public interest groups like ours that bring them. Corporations and their Sacramento allies are constantly pushing legislation to limit consumer rights to go to court because the court system is the only remaining branch of government in which truth and justice still have a fair chance against corporate money and influence.

If it weren’t for lawsuits, insurance companies wouldn’t have been forced to pay what they owed their policyholders. Consider our 1997 suit against Allstate for claims-handling violations, brought on behalf of the public under the state’s “citizen attorney general” law. The ensuing publicity and an investigation by the FBI compelled Allstate to settle the case and a related class-action lawsuit. The company agreed to reinvestigate the quake claims of its policyholders and pay any additional money owed as well as their costs and legal expenses. Under this process, supervised by judicial authorities, Allstate may ultimately pay policyholders as much as $100 million. Moreover, Allstate agreed to hire an outside consultant to improve its claims practices. In short, we did Quackenbush’s job for him.

A final portion of the Allstate settlement created a tool to prevent future scandals like the one we’re in. The company agreed to pay $5 million to us to create a new watchdog organization, the Consumer Education Foundation. Its mission is to protect the public in areas where the regulatory or legislative process has failed. The imbalance of power between people and large corporations extends far beyond the insurance marketplace. In addition to protecting insurance policyholders, the foundation is developing safeguards against e-commerce abuses and Internet privacy assaults; drafting a “lemon law” for computer products; and organizing a public conference on the community obligations of television stations. Also, it will promote the protection of public health and safety against technologies that endanger us. This is a new institution that will be an advocate for consumers long after Quackenbush is gone.