As of last week, both sides were claiming victory when a judge issued a ruling finding the fund did have a right to bring its suit, but didnt grant an injunction against Mr. Garamendi from regulating State Fund.

For agents, the current situation only adds up to one great mess. There is little capacity. Insurers are leaving the state because State Fund is undercutting carriers premiums, they say. But they also blame a system that has become costly and unmanageable. Insureds are dealing with exceedingly high premiums and an insurance regulatory system that is close to breaking the back of captive plans.

Richard Beedle, a principal at Arroyo Insurance Service Inc. in South Pasadena, Calif., said that the current political climate in California is unfriendly to business in general and lacks any balance between the needs of consumers and business. Years of mishandling problems produced a number of crises, most currently in the area of workers comp, said Mr. Beedle, who is an active member with the Western Insurance Agents Association, formerly known as the Professional Insurance Agents of Group.

Agents blame the states deregulation plan in the mid-1990s that opened premium pricing in workers comp. The plan, said Michael Hodge, an insurance broker with United Valley Insurance Services in Fresno, Calif., and a past president within WIAA, created a system where State Fund, instead of being the insurer of last resort, became a competitor with the standard market.

“We recognized back then that State Fund should be able to compete for some good accounts,” said Mr. Hodge, who was part of committees examining the system. He had reservations then fearing that State Funds competitiveness could get out of hand and take too much market share. Unfortunately, he said, he was proven right.

State Fund says it has about 50 percent of the workers comp market in the state. Mr. Beedle said that 20-30 percent market share would be healthy.

“I think they are writing more,” said Mr. Hodge. “There is a lot of distortion in the figures. No one really knows how much business is there. [The figures] baffle me.”

“Part of the problem is State Fund saw itself as a competitive market,” said Karen Oxman, a vice president with GNW Insurance Service Inc., based in Los Angeles, and spokeperson for the Insurance Brokers and Agents of the West.

With a recent loss of capacity in the state, business increased and State Fund has become unmanageable, she said. There are not enough people at State Fund to handle the business. Because of a state hiring freeze, it cannot hire what it needs. To add insult to injury, the fund is canceling agents with poor loss ratios, a contradiction of the Funds original mission, she said.

“Agents are frustrated because they are trying to protect their clients who are paying exorbitant rates with very few options,” she said. “[Employers] are either leaving the state or going bare because they cant get insurance.”

Agents are also unhappy that the fund has cut their commissions to save money, down to around 8 percent, they say.

Trying to fix the states broken system requires political will. The will is not there, they say, blaming a Democratic legislature that is unwilling to pass reforms and blocks any measures proposed by a few Republicans.

“There were 50 bills sponsored this year to make changes in workers comp, and they were dead on arrival because the wrong people were sponsoring them,” said Mr. Beedle.

“Since April, what agents and brokers have to go through to get business is ridiculous, but no one is stepping into the void to fix it,” Mr. Hodge observed.

Among the reforms needed, the agents say, is a system that does not allow claims to remain open for years. Doctors and chiropractors need to be stopped from manipulating the system for their own economic benefit. There is also the issue of regulations that allow for unchecked fraud. Lobbying interests from doctors, chiropractors and trial attorneys are keeping reforms at bay, they say.

Ms. Oxman said the states insurance regulations are so cumbersome that they “could sink” one Los Angeles Countys captive program, noting that she is a member of the advisory board there.

When it comes to action from the commissioners office, especially concerning State Fund, the agents expressed mixed feelings about Mr. Garamendi.

“There is kind of a lot of mud slinging between the commissioner and the fund,” said Jim Armitage, a principal at Arroyo and head of the IBA West media team. “Its not a lot of fun to be in the middle.”

Mr. Armitage echoed the feeling of other agents that Mr. Garamendis motives have less to do with making sure the system works than aspirations for higher political office. “Its really tough when someone takes office to protect consumers and oversee the insurance industry and politicizes it and does not make good decisions,” said Mr. Armitage.

“The department should not take over State Fund, but it should regulate it,” said Mr. Hodge, who mirrors the opinions of others. He echoed their comments that Mr. Garamendi is too much of a consumer advocate and is not seeking balance with the needs of the industry. This imbalance is adding to the reluctance of carriers to return to California, even if legislative reform were passed quickly, he added.

“My sense is that those companies who are not being regulated by him, dont care to be,” said Mr. Hodge.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 11, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.