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Los Angeles Business Journal
Sep 15, 2003
by Laurence Darmiento
Garamendi promoting reform, himself;
California Insurance Commissioner John Garamendi seeks workers' compensation reformWhen Insurance Commissioner John Garamendi abruptly pulled out of the governor's race last month, just days after jumping in, he was widely criticized for entering a contest he should have stayed clear of.
Yet just last week, the same John Garamendi was basking in one of his bigger triumphs: passage of a workers' compensation reform package that he had repeatedly called for during his run last year for insurance commissioner.
Once more, the 58-year-old Sacramento veteran had managed to reinforce his reputation as both political outsider, whose overweening ambition can get the better of him, and political pragmatist, who is unafraid to tackle some of the state's toughest problems.
"He is probably one of the smartest and tireless people I know who have held office, but one who can also make your jaw drop because of his self promotion," said Dave Roberti, a former leader of the state Senate who sparred with Gararnendi in the 1980s. "When he wants to work with others he can be very effective, but sometimes John marches to his own drummer."
In less than a year, Garamendi has taken on a variety of thorny issues, such as reform of the homeowners' insurance market, efforts to expand health insurance, and resolution of the Credit Lyonnais scandal, which has dogged him for years.
And now, with Gov. Gray Davis promising to sign the workers' compensation package, Garamendi's hand likely will be strengthened
The question is, where does he go from here?
"I have no idea what the future holds," said Garamendi, whose resume includes being a rancher, a Harvard MBA and Peace Corps volunteer. "I know I have a great job right now dealing with extremely important issues for the state of California. It's my passion to deal with problems in the state."
To be sure, the workers' compensation package that emerged out of a bipartisan Assembly-Senate conference committee last week was not all that Garamendi had hoped.
It did not include, for example, independent medical review of workers' injury claims. It also did not address the method by which workers disabilities are valued for disability payments.
Moreover, business interests are questioning whether the reforms enacted, including limits on care and establishment of fixed medical payments, will provide for the estimated $5 billion to $6 billion in savings.
Yet, it's still the biggest set of reforms since deregulation of the ill-fated system a decade ago, and even business advocates agree it should at least help stave off another round of premium increases next year--something Garamendi is getting his share of the credit for.
"He did a lot of shuttle diplomacy to try and work out an agreement between both the Senate and the Assembly," said Mark Sektnan, an assistant vice president for the American Insurance Association, a carrier group.
Charles Bacchi, a lobbyist for the California Chamber of Commerce, one of the groups that have questioned the savings, said Garamendi deserves credit for raising the need for reform across the state. "He has kept it on the front burner for decision-makers this year," he said.
While he has been praised for taking a middle ground in workers' comp, his other reform efforts are again drawing denunciations from insurance carriers. It's a throwback to his first term as Insurance Commission from 1991 to 1995, when he sparred with insurers over implementing Prop 103, which rolled back auto, homeowner, business and other property-casualty rates, while giving the commissioner authority to review proposed rate increases.
Dan Dunmoyer, president of the Personal Insurance Federation of California a trade group representing large insurance companies, said Garamendi campaigned last year as a "kinder, gentler John," but outside workers' comp issues, "he has not shown the same balance."
Garamendi says the problems in the homeowners' market are not similar to those in the workers' comp arena, in which carriers were going bankrupt because of out-of-control costs.
"The workers comp reform was not a traditionally popular issue for Democrats but it had to be done. The homeowners insurance companies are doing many things that are abusive."
In his homeowner bill of rights this year, Garamendi has tried to crack down on what he calls "ignorant" databases that track claims and can result in a homeowner being unfairly denied insurance.
He has also issued regulations that require carriers to more closely review whether past claims are an indication of a future risk and not to simply rely on statistical formulas when underwriting homeowner insurance--a move currently mired in court.
Garamendi has also been cracking down on the use of credit scores in determining whether a carrier will offer homeowners insurance, and he plans to hold hearings on further restricting the use of zip codes in underwriting automobile insurance.
Outside of the property-casualty arena, he also hopes to push forward with his plan for so-called "24-hour" care that could merge some elements of the workers' comp system with traditional health coverage.
And there finally appears hope that the Credit Lyonnais scandal may be coming to a close.
Garamendi seized the failing Los Angeles-based Executive Life Insurance Co. in 1991 and sold its junk bond portfolio to what he thought was a consortium of French investors for $3.25 billion, who then sold the portfolio for a huge profit.
It was later revealed the buyer was a front for Credit Lyonnais, a French owned bank that under state and federal laws at the time was prohibited from owing a domestic insurance company.
Garamendi's department has sued the bank for $2.54 billion. Meanwhile, it's been reported that the bank is about to cut a deal with U.S. prosecutors that could involve pleading guilty to an as yet unspecified criminal charge.
If that's the case, Garamendi said it's that the bank will seek some sort of settlement of the state suit. "I suspect they will want to have a conversation," he said.
Garamendi's involvement in politics goes back to 1974 when he was elected to the state Assembly. He quickly moved up to the Senate where he served until 1991, when be was finally successful in a run for statewide office in the insurance post.
Prior to that, he had unsuccessfully run for governor in 1982, losing in the Democratic primary to Los Angeles Mayor Tom Bradley. He later lost another primary run for governor against Kathleen Brown.
Roberti said he can remember political insiders looking at Garamendi's run against Bradley as tilting at windmills, but noted that his former colleague, who grew up on a Northern California ranch, didn't seem to mind. "He works under the premise that if you are from a lesser populated area you have to keep running so people get to know your name," Roberti said.
Kevin Spillane, who was a political consultant to Gary Mendoza, Garamendi's Republican opponent in last year's insurance commissioners race, believes the record shows little more than naked ambition, something that along with Garamendi's aloofness and outsider status, has turned off would-be allies.
"He is ambition personified," said Spillane. "It was not a surprise to me he tried to jump into the recall election."
But Garamendi has managed to cultivate a legion of supporters who strongly defend his political record, such as Jamie Court, executive director of the Foundation for Taxpayer & Consumer Rights, which authored Proposition 103.
"It's redundant to be called ambitious if you are a politician," Court said. "The truth is Garamendi has stared the insurance industry in the eye, called their bluff and collected money for the public, I can't think of any other statewide politician who has done the same."
But with his aborted run for governor last month, Garamendi's political judgment is again being questioned. He jumped into the race after Lt. Gov. Cruz Bustamante had already announced, and reportedly came under pressure to pull out from Democratic leaders.
"I was uncomfortable with the whole thing, and I didn't like the recall to begin with," he said, denying he was under political pressure to pull out.
He doesn't deny that he holds higher ambitions, but maintains that whether or not they are fulfilled will not make or break him. He said his goal is to simply to create "the best consumer protection agency in this nation."
"I am here to solve problems for consumers," he said.
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