CLUE Reforms Top Garamendis Agenda

The most contentious issue then, he said, was determining how much in rollbacks, or refunds, companies would have to pay under the proposition.

"He came into office and came up with a method for doing that and, of course, it was very controversial," Mr. Sorich said. "It's a different scene now. Prop. 103 implementations are settled. He comes in without pressing issues, but there are some troubled lines in the state," he said.

Mr. Sorich listed insurers' use of the Comprehensive Loss Underwriting Exchange, or CLUE database, as an immediate concern. (CLUE is a repository of personal auto and homeowners insurance claims histories maintained by Alpharetta, Ga.-based ChoicePoint.)

Mr. Garamendi, in fact, said in his inaugural speech, "We will aggressively investigate this dysfunctional market and I will use my full power to address every legitimate concern," referring to the use of CLUE reports in the California homeowners market.

Mr. Garamendi told National Underwriter that he has two concerns–the accuracy of the database and the ability of consumers to address any inaccuracies, and the way insurance companies are using CLUE.

"Presumably, the federal fair credit reporting laws are applicable," he said. "But I am certain consumers have no clue about CLUE, and therefore no real corrections have taken place except for in isolated incidences."

Consumers have a right to correct inaccurate information, but can't do so if they don't even know the database exists, he said. "I'm looking for a way of adjusting that." Mr. Garamendi said that insurance companies need to inform their customers that the system is being used.

"If you refinance your house, you are given your credit report as part of the process, and an opportunity to correct any issues in the credit report," he explained. "That is something that I can require insurance companies to do" with respect to CLUE claim reports.

Mr. Garamendi said he also has an issue with the way insurance companies use CLUE. "I hear complaints," he said. "In fact, this department has seen a four-fold increase in the number of consumer complaints originating from homeowners insurance issues, mostly related to non-renewal as a result of CLUE."

During the entire year of 2001, he said, the department received about 320 written complaints related to homeowners non-renewal issues, while "by the third quarter of 2002, the department received more than 1,200 written complaints," he said. Insurers use of CLUE also is an issue in Texas, Illinois and Georgia, he said.

Although insurers say "this is no different than the Department of Motor Vehicles report being used for auto, actually it is different," he said.

He explained that the DMV report is a file based on information entered by law enforcement. The CLUE database, however, is "wholly owned and created by the insurance companies."

Mr. Garamendi warned insurers: "This is a heads-up. We're going to be dealing with it and there will be a resolution in the next several months ahead. It's going to get done right away, and if we feel the need we'll do an emergency regulation."

Mr. Sorich said insurers in California are also concerned about implementation of new privacy regulations. NAII has asked Commissioner Garamendi to consider delaying the effective date of the regulations to give insurers time to see whether there will be new legislation passed in California.

He noted that before Mr. Garamendi took office, the Department of Insurance adopted some unique privacy regulations, which go into effect in Marchnotices that are different than the national requirements of the National Association of Insurance Commissioners.

Under the California regulations, which call for California-specific privacy notices and address readability standards, Mr. Sorich explained that the notices must be written in language that is understandable by the consumer.

"Our concern is that it will be difficult to convey the idea in simple language," he said. "These are complex issues to explain, such as terms like affiliates and non-affiliates."

He said that NAII member companies are "on the verge of retooling their systems and sending out new notices, a very expensive venture." The concern, he said, is that pending legislation in the state could "change the rules again," which would create needless expenses for insurers.

"I've not decided how I'm going to deal with it yet, although I will very soon," Mr. Garamendi said. "Part of their reason for delaying is their assumption that Jackie Speiers' (D-San Francisco) bill would pass." Industry representatives, he said, "have sent me a memo on it, but we have not yet had a conversation."

Sen. Speiers' bill, S.B. 1, calls for increased consumer control over private financial information. In addition to making it easier for consumers to inform financial institutions of privacy choices, the bill contains tougher penalties for organizations whose information sharing leads to identity theft, according to a bill summary presented on the state senators Web site.

Of the California State Compensation Insurance Fund, Mr. Garamendi said, "There are a lot of rumors and a lot of people guessing about State Fund's situation. I am not in the position of guessing. I'm in the position of working with State Fund to fully understand their situation."

He continued: "There is no doubt they have grown very rapidly in the last two years, and growth of that magnitude in any company creates stresses, both operational and management, and it can create financial stresses. We will be making public announcements on this when appropriate."

As for the "Good, Bad and Ugly" list of insurers that Mr. Garamendi initiated during his first term in office, he said "the process and the system are still in place, but I understand we don't use those terms any more."

Even though some insurers are at the top of the list of consumer complaints and others are at the bottom, "I don't think we'll go back and use these terms again," he said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 27, 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.