California’s new insurance commissioner, Silicon Valley entrepreneur Steve Poizner, was sworn into office Monday, promising to lower insurance rates by attacking fraud and to make earthquake insurance more attractive to homeowners.
Poizner, along with Gov. Arnold Schwarzenegger, was one of only two Republicans elected to higher office in the November election in a state where Democrats control the Legislature.
Sounding not unlike Gov. Schwarzenegger in his inaugural speech, the first-time officeholder promised to “divorce the job from politics as usual,” saying, “Consumer protection is not a Republican or a Democratic affair.” He promised to work to make his office nonpartisan, which would allow voters to cast votes for candidates for insurance commissioner in the 2010 primary election regardless of party affiliation.
Poizner said “insurance must be made available to all Californians at fair and reasonable prices,” and mentioned auto, life and workers’ compensation insurance in his inaugural speech. But Poizner did not volunteer his views on one of his predecessor’s biggest initiatives — a plan to roll back title insurance rates and escrow fees by $1 billion a year.
Former California Insurance Commissioner John Garamendi — elected to the post of state lieutenant governor in November — claims escalating home prices and a lack of competition in the industry allowed insurers to raise rates higher than what was justified by costs, allowing them to earn excessive profits.
Garamendi said a 1973 law gives the state’s insurance commissioner the right to cap insurance rates if it’s determined that there is a lack of competition.
The title insurance industry has vowed to fight the rollbacks, which were scheduled to take effect in March. At a hearing in August, industry lawyers argued the state hasn’t proved a lack of competition that would give it the authority to cap rates.
In one of his last acts as insurance commissioner, Garamendi on Jan. 5 sent the latest version of his proposed title insurance rate regulations to the California Office of Administrative Law, which reviews regulations proposed by state agencies to ensure that they are drafted with public participation.
In an interview with Inman News, Poizner said he needs to examine the proposed title insurance regulations “very closely” before stating his position on them.
In general, Poizner said he views all lines of insurance in a similar way: “I want to make sure consumers have lots of choices, that they have all the information they need to make intelligent decisions, and that insurance companies fulfill all obligations to policyholders.”
As a former businessman, Poizner said he’s conscious of the need to provide “the right kind of environment” for insurance companies to provide services, but that “all of my decision making will be focused on what’s best for consumers.”
In a report supporting Garamendi’s proposed title insurance rate rollback, Insurance Department staff members said rapidly appreciating home prices “resulted in windfalls for the California title and escrow industry because title and escrow rates are tied to real estate transaction size.”
The report said from 2000 to 2006, the average title insurance premium for a home purchase went up 160 percent, to $1,708. The average value of California homes covered by title insurance policies went up 197 percent during the same period to $542,683. But only 5 percent of title insurance premiums are actually tied to loss exposure, the report said, so premiums should not have risen so dramatically.
Garamendi’s proposed rate reduction would roll back rates to 2000 levels, after adjusting for inflation and increased liability from increased property values. The latest formula proposed would roll back title insurance for home purchases by 25.6 percent, and 9.8 percent for refinancing.
If adopted, the proposed regulations would also roll back escrow fees on a regional basis — by 23 percent in Southern California, 7.4 percent in the San Francisco Bay Area, and 23.6 percent in the rest of the state.
The California Land Title Association recently filed its objections to the latest revisions to the proposed regulations, and restated its position that the state cannot set rates.
“The Insurance Commissioner does not have the statutory authority to set title rates or require an industrywide rate rollback,” CLTA Executive Vice President and Counsel Lawrence Green wrote Garamendi on Dec. 13. The proposed regulations are in conflict with federal antitrust law, and “would have a significant anti-competitive impact as companies are driven out of business by their inability to be profitable under the proposed rate structure,” Green said.
Whatever decision Poizner makes on title insurance rates, he said he’s determined to improve the earthquake insurance offered to homeowners by the California Earthquake Authority. Noting that only one in eight homeowners in California has earthquake insurance, Poizner said, “We need to look at ways to make the product more attractive. I think it’s perceived to be pretty expensive, with high deductibles, and it’s not aggressively marketed.”