CA: Commissioner (John Garamendi) claims shakedown over auto insurance regs

State Insurance Commissioner John Garamendi accused a group of insurance companies Monday of trying to blackmail him by threatening to run a $2 million ad campaign against his pending auto insurance regulations in the midst of his campaign for lieutenant governor.

Garamendi said a woman who represented either the insurance industry or an insurance company contacted him through an intermediary and offered to drop the ads if Garamendi abandoned the regulations, which would limit use of ZIP codes in setting auto insurance pricing.

"There was a threat made to me to back off or else," he said in an interview. "A $2 million negative campaign would be released against me. That is blackmail. That is extortion, and may be very well an attempt to bribe me."

He said he rejected the offer and planned to file a formal request Tuesday asking the FBI, the U.S. attorney's office and the state attorney general to investigate his allegations.

A group called Californians to Stop Unfair Rate Increases announced Monday that five insurance companies Farmers, 21st Century, State Farm, Safeco and Allstate were putting up funding for the ad campaign.

But a spokesman for the industry-funded group, Rick Claussen, denied that there had been any attempt to blackmail Garamendi.

"It's unfortunate that Commissioner Garamendi is distracting from the real issues of this effort which is to educate Californians about impending, unfair auto insurance rate increases by making baseless and inflammatory accusations that are completely untrue," Claussen said in a statement.

Claussen's group released the text of a planned mailer and script from a television advertisement. Spokeswoman Kathy Fairbanks said they highlight the issue while avoiding politics or personal attacks on Garamendi.

However, the mailer mentions Garamendi by name several times and the television ad asks viewers to "tell Insurance Commissioner John Garamendi to drop this unfair plan now."

The television ads will begin running next week in 17 largely rural counties, Fairbanks said. The fliers will go out shortly after that.

Opponents contend the regulations will mean higher auto insurance rates for drivers in rural and suburban areas with relatively few accidents and auto thefts and rate cuts for drivers in major urban areas.

Garamendi disputes that argument. He said the proposed rules will carry out voters' intent when they approved Proposition 103, a 1988 measure that slashed auto insurance rates and mandated changes in how rates are calculated.

"It brings fairness to the pricing of auto insurance by reducing the impact of ZIP codes and increasing the impact of the good or bad driver," he said. "It's not good news for reckless drivers."

The proposed regulations would allow auto insurers to use ZIP codes in setting their rates, "but they cannot be more important than the three mandatory factors: driving experience, miles driving and driving record," Garamendi added.

He said the insurers oppose the regulations because "they are unwilling to change and adapt to the laws. They have for decades used ZIP codes as predominant in pricing auto insurance ... and they don't want to change their marketing practices and their computer systems."

Garamendi said the offer to drop the ad campaign came through Darry Sragow, a Los Angeles attorney and former political consultant who ran Garamendi's unsuccessful campaign for governor in 1994 and advised him on his campaign for commissioner in 2002.

Sragow said he was contacted by "someone who works for one of the large insurance companies" in mid-April. He was asked to tell Garamendi that a coalition would put together the ad campaign unless he put off consideration of the regulations until his successor takes office next year.

Garamendi is running in the June 6 primary election against state Sens. Liz Figueroa, D-Sunol, and Jackie Speier, D-Hillsborough, for the Democratic nomination for lieutenant governor.

Sragow wouldn't say who contacted him other than to say it was "somebody I have known professionally."

He said Garamendi told him "hell no, no way, it's a nonstarter," and he passed on that response to the person who contacted him.

In a statement posted to the Department of Insurance Web site, Garamendi said State Farm's regional vice president, Greg Jones, told Garamendi's chief deputy that he was aware of Sragow's call on April 25, the day after it was made.

A State Farm spokeswoman said the company and Jones were referring calls to Fairbanks, who denied there had been an attempt to blackmail the commissioner.

Garamendi said he waited until Monday to make his blackmail claim because he didn't know until last Friday that a campaign group had been set up pay for the ads.

Tom Dresslar, a spokesman for the state attorney general's office, said once Garamendi files his complaint "we will undertake a serious, thorough review to determine whether any laws have been violated."

Cathy Viray, an FBI spokeswoman in Los Angeles, said she hadn't seen Garamendi's complaint and couldn't comment.

The Department of Insurance is accepting public comments on the proposed regulations until May 17. It will submit the regulations next month to the Office of Administrative Law, which will rule on whether they carry out the intent of the law.

Garamendi says insurers trying to coerce him on auto regulations; asks FBI, state to investigate
By John Howard

http://www.capitolweekly.net/news/article.html?article_id=695
May 5th, 2006

State Insurance Commissioner John Garamendi accused automobile insurers of "coercion, extortion and blackmail" for launching a $2.4 million campaign attacking his proposed regulations that would cut the cost of some drivers' coverage in crowded urban areas. He asked the FBI, the U.S. Attorney and state Attorney General Bill Lockyer to investigate his allegations.

Garamendi, a Democratic candidate for lieutenant governor in the June 6 primary, said he was told that if he backed off pushing the regulation, he would be spared an attack by insurers as Election Day neared.

He said he was informed that "if I abandoned my political responsibilities and delayed implementing the will of the people, I would not be hit by a $2 million negative advertising campaign," Garamendi said Monday. "I firmly believe that this amounts to a serious attempt to blackmail me in my role (as insurance commissioner)."

Insurers and their representatives dismissed Garamendi's allegations, saying the campaign represents an effort to educate consumers about auto insurance rates. Californians to Stop Unfair Rate Increases, the coalition financed by insurers and including an array of local government officials, urges people on its Web site to write in to "tell Insurance Commissioner John Garamendi to STOP his department's unfair regulation that would raise our rates."

Insurers contend Garamendi's proposed regulations downplay the importance of a driver's address, and thus prevent insurers from accurately determining risk--the key element in pricing coverage. They say that requiring insurers to cut costs in some counties, such as Los Angeles, Orange and San Diego, would force carriers to raise premiums elsewhere. Insurers estimate that six out of 10 policyholders would experience price spikes of up to 30 percent, under Garamendi's proposed regulation.

The commissioner said the regulations are needed to meet the requirements of Proposition 103, the voter-approved ballot initiative that requires automobile insurance to be based mainly on a driver's safety record, miles driven and level of experience.

Garamendi said veteran political consultant Darry Sragow telephoned him two weeks ago to alert him that automobile insurers planned to move forward with their campaign if Garamendi proceeded with the regulations. Sragow, who learned of the insurers' plans from an insurance executive, said he had contacted Garamendi at the executive's request.

"I thought, 'Well, if there's going to be a messenger, it might as well be me,'" Sragow said, adding that he had been told that "they (insurers) planned to move ahead unless John was willing to let this issue go and leave the issue to be dealt with by his successor. That's what they were looking for."

"I played a very specific role. I was asked to make a call… I did that. He gave a very clear response," Sragow added.

Capitol Weekly reported last week that a coalition of insurers, including Allstate, Farmer's, State Farm, Safeco and 21st Century, planned to finance a $2.4 million campaign attacking Garamendi's proposed regulations, which would limit the ability of insurers to use a driver's Zip Code to set rates. The rules could lower premiums for some drivers in six urban counties, while boosting rates in the other 52 counties, including California's most rural areas. On Monday, Californians to Stop Unfair Rate Increases said the campaign, costing between $2 million and $2.4 million, will pay for television ads and direct-mail.

The group said the campaign will target Butte, Del Norte, Humboldt, Imperial, Inyo, Kern, Kings, Mendocino, Nevada, Lake, Plumas, Santa Barbara, San Benito, San Diego, Solano, Tulare and Yolo counties. More counties may be added later, the group said.

"This proposed regulation is so unfair," said Michael Turnipseed, executive director of the Kern County Taxpayers Association. It would shift the cost of fighting fraud "to drivers who live in less populated regions of the state--like our's, where there is less fraud," he added.

The money will be provided, at least initially, by the auto insurers.

A spokesman for State Farm, which insures about one in every seven California automobiles, said the timing of the project was dictated by the regulations' release, not the looming June primary election.

"The final version of the regulations from the Department of Insurance came out two weeks ago. If they had come out in January, we would have considered this campaign in January. If they had come out in August, we would have considered this in August," said State Farm spokesman Bill Sirola.

Garamendi faces Sens. Liz Figueroa of Fremont and Jackie Speier of Hillsborough in the June primary. Speier heads the Senate Banking, Finance and Insurance Committee, and has been critical of Garamendi on a number of insurance-related issues. The insurers' committee is not connected with Speier's campaign.

The direct-mail effort will target Zip Codes in which auto rates would rise under the proposed regulation, urging recipients to contact Garamendi and voice their opposition to the regulation.

The regulation has been the subject of numerous public hearings. It seeks to provide a break in auto insurance rates to motorists in California's most crowded urban areas, where automobile coverage costs the most. Support for the proposal has come from consumer groups, including the Santa Monica-based Foundation for Taxpayer and Consumer Rights, which argues that drivers in those areas have been gouged by profit-seeking companies.

Insurers note that their rates are approved by the commissioner, and must be based on risk to protect the companies' fiscal solvency. They say that costs related to repairs, theft, litigation and injury-frequency are greater in the urban areas, and require higher rates to cover the costs. Their main contention is that the regulation would force rate increases in 52 counties in order to make up for a lowering of rates in the remaining six.

Under Proposition 103 of 1988, companies are required to base their rates on miles driven, safety experience and age, but can consider a number of other factors, including where the car is garaged, gender, marital status and numerous other factors. Insurers believe that greater weight should be given to the driver's address and where the vehicle is driven and garaged.

Industry-backed legislation to block the regulations, AB2840 by Assemblyman John Benoit, R-Riverside, is scheduled to be heard in Assembly Appropriations on May 10.

John Howard is the Managing Editor of Capitol Weekly.

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