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home / insurance / in the media

Oakland Tribune
Apr 01, 2004

by ERICA WERNER, Associated Press Writer

Garamendi, activists assail bid to deregulate insurance

Foundation says Republican congressman's proposal would "eviscerate Proposition 103"
WASHINGTON -- California consumer activists and the state's insurance commissioner criticized a Republican proposal to remove state price controls on insurance premiums and shift regulation of the industry to the federal government.

State Insurance Commissioner John Garamendi sent a letter to House Financial Services Committee Chairman Michael Oxley, R-Ohio, arguing the plan would undermine a state voter-approved measure that regulated rates of auto, property and casualty insurance.

"I do not believe that a radical reduction of oversight of insurance companies is in the best interest of American consumers," Garamendi wrote. "This proposal aggressively attacks insurance rate regulation ... such as that in California."

Oxley's plan was discussed Wednesday at a hearing of the Financial Services Committee's subcommittee on capital markets and insurance. The plan Oxley outlined in mid-March includes a federal-state advisory council headed by a federal appointee and envisions moving "as quickly as possible" to a free-market system. About half of states, including California, now regulate rates.

Oxley said his plan would increase competition, enforce uniform standards and eliminate the "travesty of price controls" in the industry.

"The states cannot get the job done by themselves," he said at Wednesday's hearing.

His plan was endorsed by several Republicans in California's congressional delegation, including subcommittee member Rep. Ed Royce, R-Fullerton.

"Our experience has been that insurance firms are more likely to leave than expand their businesses in California and that is because of the price control-based regulatory regime that we have there," he said at the hearing.

But the Santa Monica-based Foundation for Taxpayer and Consumer Rights contended rates are lower in California than elsewhere in the nation because of Proposition 103, which voters passed in 1988. The foundation's executive director, Douglas Heller, said the measure has saved residents more than $23 billion on auto insurance rates alone, while also keeping the market strong for insurance companies.

He warned in a letter to California members of Congress that Oxley's plan would "eviscerate Proposition 103." Workers' compensation rates were not regulated by the proposition.

Insurance industry officials endorsed Oxley's plan, saying if anything more federal oversight was needed to impose uniform standards on states where varying approaches and price controls are causing some insurance companies to leave markets.

Subcommittee member Rep. Brad Sherman, D-Sherman Oaks, said in an interview later that he saw a federal role only in life insurance, noting that property and casualty insurance are tied to specific locations.




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