Disparate Issues Face Insurance Regulators On East And West Coasts

"Virtually the entire insurance industry [in California] is upside down with the possible exception of life insurance," said Mr. Garamendi.

In health care insurance, costs are rising rapidly, while more and more people are going uninsured. Those who are insured are seeing rates and co-pays increase, along with higher deductibles and exclusions.

In workers compensation "we are seeing the California market implode," he said. "[We are seeing] extraordinary cost increases that are clearly driving business out of the state, causing others to quit their business and dramatically harming the California economy."

On June 4, Fremont Indemnity became the 27th workers comp company to go into conservation in the past four years, he said.

The State Compensation Insurance Fund is also in trouble, and the workers comp system "is not sustainable without immediate, comprehensive, quantifiable and substantial reform. I dont think it is going to last," Mr. Garamendi predicted.

He said there is a comprehensive reform package working through the state legislature to change the system and correct the states system, which calls for immediate change.

On the homeowners side, there is a lack of capacity, especially after State Farm pulled out of the market leaving a "25 percent hole" in the availability of new homeowners policies in the state, he said.

Prices are also up, and he said companies are being very selective in their underwriting. He accused them of employing a "use it and lose it" approach, where policyholders are being dropped by underwriters as soon as they file a claim or are faced with "extraordinary" increases.

Mr. Garamendi said he is doing his best to stop the use of credit scoring before it becomes "pervasive" in the state, and there is legislation in the works to "stop it completely in California."

He noted too that companies are improperly using claims data information by not informing customers of its use and not allowing them to change incorrect information. He is directing companies to amend this practice.

He added that he tried to sit down with both the industry and consumers to go over their concerns and work out a resolution. Instead, they have sued the commissioner for his efforts, but he warned, "If they think Im going to go away, they have not taken a look at my history."

Liability insurance is unobtainable for many contractors and subcontractors, which is affecting the construction business in the state. And the nursing home industry is afflicted with rates that have jumped from $200 a bed in premium to $2,000 a bed, "if available at all."

Complaints are coming in from professionals who are finding a tight market for obtaining errors and omissions insurance.

There is a continuing problem in auto with redlining and ZIP code rating factors, which will soon be the subject of hearings addressing the issue.

Despite what appears to be an overwhelming set of problems, Mr. Garamendi, who is serving his second non-consecutive term as commissioner, after getting elected just last year, said he is happy he is where he is.

"This is exactly where I want to be," said Mr. Garamendi. "These are critical issues for the well-being of the people of the state. [This] is what I want to do–to deal with issues that are important to them."

New York is looking past the point of crisis and "making sure that the trouble parts remain stable," according to Mr. Serio.

Medical malpractice and automobile were two lines that had experienced a lot of disruption a few years ago, but have now stabilized. He said the work at stabilizing those markets still requires "a lot of care and feeding."

On auto, constant contact with the insurance industry and pressuring the investigative bureau to root out fraud has helped at stabilizing the market. He credited Regulation 68 as the foundation for rooting out fraud, allowing for stiffer and timelier reporting requirements among accident victims and medical providers.

With medical malpractice, Mr. Serio said digging into the financials of the carriers has lead New York away from a crisis. Instead, there is strong availability and stable rates achieved through modest increases. He said the department continues to pressure carriers to explain their need for broader rate changes, keeping them honest and allowing them to go only where they need to go.

When it comes to terror and preparation, New York is taking the lead in response and recovery, putting plans in place and helping other states to develop plans of their own. The response includes the agency not becoming a victim of a natural or cyber disaster itself by having the plans and places to continue working and helping with recovery.

"We continue to learn the lessons from 9/11," Mr. Serio said, noting that the department has come a long way and now it is "practice, practice, plan, prepare and practice."

On the health insurance side, the state is leading the way on the issue of providing coverage to the uninsured and working uninsured. New York has actually seen some rate reductions and been able to attract companies back to the state.

Additional reform is taking place in the area of technology. The department is pushing more and more services, such as agent licensing, onto the Internet. This will result in quicker service at less cost, saving half a million dollars in licensing alone.

The biggest challenge on the property/casualty side has been getting carriers to submit all their forms through the National Association of Insurance Commissioners SERFF (System for Electronic Rate and Form Filing) approval form interface. Another problem has been the departments own speed-to-market interface approval process, which still seems to be getting some resistance from a few carriers.

"Its amazing that some people are still intimidated by technology," he noted.

Of concern currently is a "gathering storm in life insurance," where there is doubt over the solvency of some companies, which the department is watching closely. But he added, there is nothing "imminent."

The major focus of Mr. Serios department right now is the states captive program, which he said has gotten a lot of "positive feedback" from business interests in the state. The department is spending a lot of time setting up groups and educating businesses on the opportunities the state initiative allows them. He added that he did not feel market conditions would be changing the need for captives any time soon.

"This is not a hard market that is going away easy," said Mr. Serio. "This is a stubborn hard market. After reading rating analyses, we do not think the pressure is going to go away."

Reproduced from National Underwriter Edition, June 23, 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.