Political Philosophy for Dale F. Ogden
I am suspicious of government regulation of any aspect of the economy, especially price regulation. The outcome of such regulation is always protection of the regulated industry at the expense of the consumer, the consumer who faces higher prices and fewer choices. Ask yourself: Does regulation of the telephone company benefit the consumer or the telephone company? Does regulation of the electric companies benefit consumers or does it benefit the electric companies? Even if you believe that the regulation of monopolistic utility companies is a necessary evil (and I believe they are monopolies only because the government protects them from competition), there is no reason to regulate insurance companies the same way. There are literally hundreds of insurance companies competing for your automobile and homeowners insurance business.
Rather than being elected, I believe the position of insurance commissioner should be appointed by the governor. Prior to the passage of Proposition 103 in 1988, the insurance commissioner was appointed by the governor. There are about a dozen states that elect their insurance commissioners, and in every case, the insurance regulatory process is politicized and has resulted in incompetence and usually corruption. While there are many issues facing insurance regulation, let me address three of my major goals as insurance commissioner:
1. Reduce the Insurance Department Budget by $100 million (about 80%)
Prior to Proposition 103, in 1988, the California insurance department budget was about $28 million. In 1996, the latest year for which I have figures, it was $127 million, about four and a half times as much. Has insurance regulation improved? Of course not. Prior to Proposition 103, California insurance regulation was thorough and reasonably competent, and respected by regulators throughout the United States; today it is a national joke. Does it really take an average of about $2 million to regulate each insurance company licensed in the State? There are competent insurance professionals employed by the California Insurance Department. Their job is to make sure that insurance companies have the financial resources to make good on their promises. Those individuals have been hampered in their efforts and pushed to the sidelines by political operatives. Favored companies are given concessions while those companies out of favor are abused (and in at least one case, totally destroyed). Although the incumbent says he supports free markets, it seems he only supports free markets for his friends. I would reduce the insurance department budget, get rid of the dead weight, and let the professionals do their jobs. 2. Deregulate rates; simplify rate regulations
Although California law requires prior approval of policy forms and rates, it does not require the micromanagement of insurance company pricing with onerous regulations (complete with favored-company loopholes) promulgated by the incumbent. I would allow the free market to operate. To give you an example of the free market at work, consider the most common insurance coverages for individuals and businesses, automobile insurance and workers compensation.
To reduce the high workers compensation rates that had been chasing businesses away from California, the legislature eliminated workers compensation rate regulation in 1995 and rates decreased rapidly and dramatically, by more than 50% in many instances. Other reforms passed by the legislature had decreased the underlying claims costs and workers compensation insurers lowered prices so fast that they were anticipating continued improvements in the underlying claims costs. Prices have now stabilized at a much lower level.
But long before 1995, there were favorable developments in the underlying claims costs of automobile insurance. For example, the California Supreme Court overturned some of its own rulings and made it possible for insurers to more successfully fight automobile insurance fraud. Automobile insurance claims costs began declining rapidly; however, regulated automobile insurance rates decreased much more slowly. Although insurance companies want to compete, they are afraid to reduce rates. If they later need to increase rates, it will be difficult for a politically-motivated commissioner to approve large rate increases. As a result, California automobile insurers are among the most profitable in the United States. In an industry where companies are happy if they make a 5% profit margin, California automobile insurers have made an average 19% profit margin. Proposition 103 and rate regulation did NOT save California motorists a dime; instead it cost them billions of dollars. The shareholders of the insurance companies thank you for voting for Proposition 103. Had rates not been regulated, automobile insurance rates would have plummeted the same way that workers compensation rates did.
Abolish the California Earthquake Authority
The California Earthquake Authority is a fraud perpetrated on the homeowners of California. The appropriately-named mini-policy available from the California Earthquake Authority provides significantly reduced coverage (with deductibles of 15% of the value of the structure and almost no coverage for contents) at significantly increased prices from what used to be available. It does not even guaranty that you will get paid. While I disagree with laws that force insurers to write earthquake policies (after all, is it OK to force anyone to operate in any business), the CEA is a bad answer to bad law. The CEA was not even capitalized. It has only some of the money it collected for premiums (there was lots of overhead). A private insurer would have had to risk hundreds of millions of dollars of its own capital to be able underwrite the earthquake insurance written by the CEA. Even worse, if the “big one” hits, CEA policyholders probably will have to pay additional premiums to cover the losses of other policyholders. Just what you need when you’re trying to rebuild your earthquake-destroyed home, an assessment to help pay everyone else’s losses.
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