We now have a new insurance commissioner. It likely will take decades before the legacy of John Garamendi, former insurance commissioner and now lieutenant governor, will be forgotten. Garamendi set the mold for the position of elected insurance commissioner, not just because he was the first but also because he vividly demonstrated the benefits and disadvantages of this position being filled through popular election. But this job has national and, indeed, international implications, because the California insurance marketplace attracts billions of dollars of capital from every corner of the world.
Decisions must be made thoughtfully and transparently. These criteria must guide the actions of a regulator who also holds statewide office in the most populous of these United States.
Constituencies must be carefully understood. At the top of that list are consumers, whether individuals, businesses, or indeed, as is the case with reinsurance, other insurers. Closely following the core objective of protecting consumers is regulating insurers. The inherent conflict between consumers and insurers is the most difficult aspect of this job, because the commissioner rarely, if ever, gets into trouble by siding exclusively with the purchasers of insurance.
But the “prime directive” is balance. In other words, consumers are entitled to the benefits of the insurance they purchase – and in some cases, the insurance they think they purchase – but it must be provided by an insurer who can successfully do business in California.
So although California is a nation-state, from an insurance regulatory perspective its unilateralism has not necessarily produced singularly successful results.
There will be ample justifications for why California sets a different path on issues where the National Association of Insurance Commissioners (NAIC) has sought uniformity. Frankly, the cost of many such distinctions, both for California and for other states, far outweighs claimed consumer benefits. The effort to bring aspects of insurance regulation into the realm of the federal government continues to gain steam in Washington, urged on by the unwillingness of states such as California and New York to embrace the concept of uniformity. Different does not always mean better.
As insurance commissioner, you have many peers. Those whose borders touch California have decades of experience dealing with issues you are about to face. Although NAIC has a committee structure (and you will be swept into its Byzantine processes), we urge you to consider a less formal, more regular dialogue with our neighbors. A trip to Salem would be especially beneficial.
Insurance is the spreading of risk. Part of your ability to regulate, consequently, involves understanding the underlying costs that drive insurance rates. This applies to all lines and all classes of insurance. There is no shortage of individuals and organizations willing to provide information on any of these subjects.
Involvement in efforts to reform the liability systems, for which insurance is purchased, therefore, is an important part of the commissioner’s overall stewardship of the insurance marketplace. In other words, if the legislature is to reform health care or construction disputes or environmental cleanups, the commissioner must be certain that reforms will enhance the ability of beneficiaries of those reforms to spread risks more economically. The commissioner also must see that those who are regulated have proper governance in place.
This is not to say that other policymakers will welcome the attention the insurance commissioner pays to such issues, but attention needs to be paid nonetheless. Not all legislation involving insurance is so identified.
Finally, competence, transparency, and integrity are not demands solely of licensees and others who are regulated. They must be hallmarks of the Insurance Department, too. Regulatory failures have occurred – in financial surveillance, in the fraud unit, and in several other areas. In today’s marketplace, especially in workers’ compensation, those failures seem a distant memory.
Making certain they do not happen again requires a very hard look inward. Each elected commissioner’s administration and senior staff have missed many opportunities to improve the Department in favor of political gain, favor or expedience. During campaigning and upon entering office, each has promised to do better.
It may not be the thing of headlines today, but it likely will prevent headlines from happening in the future.