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Wednesday, 31 May 2006 17:00

Garamendi accuses insurance industry of attempted blackmail

Five of the nation's largest auto insurers began airing an expensive TV advertising campaign in order to mislead Californians, mostly in rural parts of the state, about the effects of Insurance Commissioner John Garamendi's proposed Good Driver pricing reforms, according to the non-profit non-partisan Foundation for Taxpayer and Consumer Rights (FTCR). 

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Garamendi's reforms, which are mandated by the 1988 voter initiative Proposition 103, require auto insurers to base drivers' premiums primarily on driving record rather than other factors such as ZIP Code or marital status. 

Garamendi, a candidate for Lt. Governor, said recently he was approached by an insurance industry representative recently who conveyed an offer to cancel a massive negative advertising campaign against him if he would delay implementing the new regulations until the next insurance commissioner is elected. The commissioner refused the offer and initiated formal action to have the "blackmail" attempt investigated in a letter to authorities.

On April 26 the revised regulations were issued and a 15-day comment period commenced, during which the public and the insurance industry is encouraged to comment on the revisions. The final regulations, which will finally fulfill the promise of Proposition 103, are scheduled to be issued this month.

Carrying out the alleged threat, the commercials began running in mid-May. The industry is spending an estimated $2.4 million to persuade Californians that the Good Driver reforms would hurt them, when, in fact, the new rules will benefit good drivers and low-mileage drivers in every corner of the state, per FTCR.

Blackmail - or politics as usual

A diverse group of local elected officials, chambers of commerce, taxpayer groups and insurance companies called Californians to Stop Unfair Rate Increases said that five insurance companies -- Farmers, 21st Century, State Farm, Safeco and Allstate -- were putting up funding for what the group calls an educational effort.

A campaign adviser for the coalition, Rick Claussen, suggested that Garamendi was told about the campaign as a courtesy, not as an attempt to pressure him to drop the regulations.

"This is a very legitimate public policy campaign on a very legitimate issue that we have every right to be talking about," he said. "If this somehow has been taken out of context, I'm sorry about that. (But) what we're doing with this campaign is certainly above-board and not unprecedented. We're very comfortable where we are."

In response to the alleged threat, Garamendi has asked the Federal Bureau of Investigation (FBI), the U.S. Attorney's Office, and the Attorney General of California to investigate what he calls the insurance industry's latest attempt to derail the implementation of new auto insurance regulations that would create a fairer system for all Californians.

To the authorities:

"I am writing to request that you investigate an extremely disturbing threat that was made to me by representatives of the insurance industry," wrote Garamendi.

"As you may know, the Department of Insurance is now finalizing new regulations governing the pricing of auto insurance. The rules would require insurers to comply with Proposition 103 and give greater weight to how people drive than to where they live. Not surprisingly, the insurance industry vehemently opposes this position.

"Until recently, that opposition has been voiced through the normal and appropriate channels; speaking at the Department's public hearings, communicating to the media, and backing legislation that would, at the very least, delay implementation of the regulations. But things changed dramatically on April 24. On that day the insurance industry veered dangerously off track in its efforts, and I firmly believe that its leaders have attempted blackmail and extortion against me."


Continued the commissioner, "I firmly believe that this amounts to a serious attempt to blackmail me in my role as California's elected Insurance Com-missioner. Clearly, I was offered a significant advantage. If I abandoned my responsibilities and delayed implementing the will of the voters, I would not be hit by a $2 million negative advertising campaign in the final weeks leading up to the June election.

"While this threat was unsuccessful, I believe it is now my responsibility to stand up to this powerful special interest group and set in stone that they cannot engage in, much less succeed, with such tactics."

Support for commissioner

"The insurance industry will use any means necessary, from TV ads to extortion, to stop pricing reforms for good drivers, and this campaign should be seen for what it is: a big lie meant to mislead Californians about the impact of Garamendi's reforms," said consumer advocate Douglas Heller, Executive Director of FTCR. "Anyone who sees these ads or receives the mailer should ask themselves why they should trust the insurers' attack ad when their goal is to protect themselves, not you."

Over the past two years auto insurers have enjoyed record profits in California (reaping over $4 billion in profits from California auto insurance policies over the past two years) and are desperate to keep the status quo, which has allowed them to increase profits by charging good drivers throughout the state unfairly high premiums simply because of the ZIP Code in which they live. The new rules will still allow insurers to consider geography in setting premiums, but will require factors related to a motorist's driving record to be most important.


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