Latest From The Sacramento Merry-Go-Round

In news that rivals "dog bites man," the prospects of a budget being done on time in Sacramento rank right alongside a vuvuzela being welcome in a library.

This go-around, an added element is the threat by Governor Schwarzenegger to put a chunk of California state employees on minimum wage until such time as a budget is passed. This, however, would not apply to state employees who belong to one of the unions which recently reached an agreement with the governor regarding assorted wage and pension rollbacks.

As they say, stay tuned.

Something's Missing Here

Bit of a personal story to illustrate an insurance point.

Earlier this year, the aunt I and my family members living out here California way cared for during her declining years passed away. And so, it's fallen on us to prepare her condo for sale.

My aunt was a carefully detailed person who chronicled, and detailed, everything she did during her life. Which, for a woman who never married (her fiancé died in World War II) and lived a quiet life, was a surprising amount. She and her sister traveled across the country and to several different countries over the decades. Every trip was memorialized, down to saving every receipt. These were then neatly filed away. Whether they were ever subsequently referenced I don't know, but should the notion have ever crossed her mind, the saved memories were there.

My aunt saved everything. And I mean everything. Every bill, every Christmas card, every scrap of paper. Not that she was a packrat by any means; her condo was always immaculately kept and never cluttered. Instead, she kept everything in numerous file cabinets located throughout the place. All of which we now have to go through.

Here's where the insurance aspect kicks in.

What's the one thing we have yet to find?

You guessed it.

Her life and homeowners policies.

A reminder to us all to make sure this isn't the case for us!

News From California

We'll get back to the topic touched on in the last post later. Some recent news is more pressing in nature. From the Los Angeles Times:

Gov. Arnold Schwarzenegger won a major victory Wednesday in his push to rein in state worker retirement benefits when leaders of four unions, including those representing state firefighters and California Highway Patrol officers, agreed to a substantial and rare pension rollback...

In exchange for the concessions, the unions received a promised end to the three days per month of unpaid furloughs they have endured since last summer.

No better time to get the word out about how CSE offers discounts of 20% or more to government-employed firefighters and law enforcement professions!

Getting The Information Across (Part One)

A bit of rumination on the art of selling.

To start, let's take a look inside the realm of social media as it applies to the gathering and dissemination of news. When blogging first came to be a known quantity in 2000-2002, it was customary for traditional media, both individually and collectively, to dismiss it as a playground for amateurs. Jonathan Klein, who at the time was an executive with CBS News and is currently president of CNN's American division, made this comment: "... you couldn't have a starker contrast between the multiple layers of checks and balances, and a guy sitting in his living room in his pajamas writing what he thinks."

Unfortunately for Mr. Klein, shortly after he made this statement CBS News was caught in a falsehood by bloggers. They noticed typewritten documents CBS was showing in a story on 60 Minutes, allegedly from the early 1970s and purporting to be a record of then President Bush's military service, could not have been created during the time period to which they were assigned, as the font face and formatting were unavailable on any typewriter in existence. In fact, what was shown mirrored exactly the default settings for Microsoft Word, which debuted in 1983. Despite CBS' insistence that the documents were real, and the New York Times calling them in a headline "fake but accurate," eventually several people at CBS lost their jobs due to the brouhaha generated by the story.

This and similar incidents notwithstanding, while blogs have gained at least a foothold and grudging respect from traditional media, in the public eye they're... well, not in the public eye. Even the most popular political blogs receive but a minuscule fraction of the number of visitors sites such as CNN and FOX News' websites receive. When it comes to getting the news online, the overwhelming majority of people automatically go to the source. This is as opposed to heading for blogs offering snippets of stories from said sources, along with commentary.

And this all has exactly what to do with selling and/or servicing an insurance policy, you ask? Tune in next Tuesday to find out.

Risk Management, Or In This Case The Lack Thereof

By now, the story of Abby Sunderland is well-known. She is the sixteen year old who was attempting a solo around-the-world voyage on her sailboat. Said endeavor came to an end when her boat was battered and disabled by a Southern Ocean storm. Fortunately, she was rescued. Unfortunately, she was in a state of needing rescue. As opposed to, say, figuring out what to do on her summer vacation.

More than a little criticism has been leveled at Sunderland's parents, who in their defense have protested loud and long that their daughter is an experienced sailor and the trip was her idea. For some reason, this line of thought has failed to move many. This, perhaps, has something to do with the minor detail of their not only putting their daughter in harms way -- what, they thought she'd never run into bad weather? -- but how an experienced sailor would know better than to be traipsing around the Southern Ocean this time of year, as in the southern hemisphere fall is transitioning into winter. Actually, an experienced sailor would never attempt such a trip in the first place. Or let a teenage girl foolishly play gloryhound. Also, given the recent admission that the Sunderlands had signed up to a "reality" TV show, the motivation being strictly personal ambition becomes even less plausible.

That all said, to me the capper is this fact:

Abby Sunderland had no insurance for the trip.

Why?

Although the parents plead an inability to pay as the reason, the fact is no insurer with a shred of common sense would touch this situation, no matter how high a premium could be charged. Certainly there are policies available for extreme risk takers, providing they're willing to pay through the nose. However, there is another factor in assessing risk.

It's called common sense.

Common sense says you don't put a sixteen-year old girl by herself on a forty-foot long sailboat and say the ocean's out that way; have at it. You just don't.

Shakespeare was right. Lord, what fools these mortals be.

Why Did Proposition 17 Fail?

This past Tuesday's primary election in California, in addition to setting the field for November's general election (see yesterday's post for a look at the candidates for insurance commissioner), also had a few propositions to be decided. One of them, Proposition 17 i.e. "The Continuous Coverage Auto Insurance Discount Act," lost by a bit over 150,000 votes.

But why?

The proposition, had it been passed, would have allowed insurers to offer a persistency discount to those insureds who had maintained continuous coverage with a different carrier. On the surface, this would appear to be a slam dunk for the consumer. Proponents of the proposition stated that its passage would lead to lower rates for many insureds, as providers would need to more actively compete for not only obtaining new business, but keeping current business on the books. The argument went that, as an example, should an insured be receiving a 5% persistency discount from their current provider, a provider competing for that customer would be at an immediate disadvantage price-wise due to being unable to offer the same discount. Should they be able to offer the same discount, the competition between companies for that customer would now be based on the base rate, along with all other features of the products being offered, such as different discounts, amount of coverage, what is covered, and the like.

Again, this at least sounds like a terrific deal for the consumer. Say they looked at Company A and decided they liked its product more than what their current provider Company B offered. However, they were inclined to stay with Company B due to the persistency discount they alone were able to offer, thus making Company B's price sufficiently lower than what Company A could offer. Price always has a major impact on the consumer's decision. Who doesn't want to save money? Therefore, Company B had an advantage over Company A that Company A could never match.

So why was this rejected?

Short of individually polling everyone who voted against the proposition, the probable major reason for it losing can be found in, somewhat ironically, a neutral outlining of the proposition by the California Department of Insurance. It reads (emphasis mine):

California automobile rating is unique in many ways. However, the nature of applying discounts and surcharges is not unique and reflects a basic principle of insurance ratemaking. This basic ratemaking principle is "zero-sum" in the following sense: Every automobile insurer must have an approved "rate plan" that establishes its average premium. Within that rate plan, every "discount" requires a corresponding "surcharge" so that every factor influencing a rate will balance evenly over an insurer's book of business...

The Continuous Coverage Auto Insurance Discount Act, as revised and submitted on September 2, 2009, is subject to this principle. That is, if an insurer offers a continuous coverage discount for some drivers it will result in a surcharge for other drivers. This is because automobile insurance discounts and surcharges must offset one another so that each rating factor applied by an insurer is evenly balanced within the insurer's rating plan. This assumes that the insurer chooses to offer a continuous coverage discount and does not submit a new rate plan that would change its average premium.

Automobile rating is extremely complicated, and there is no way of predicting the precise impact a specific factor (in this case, continuous prior insurance) will have on each of the insurer's customers until the insurer submits specific data to the Department of Insurance. Insurers periodically file new rate plans which may reduce or increase the average premium for their customers and/or new class plans which apply specific rating factors to their customers and may reduce or increase individual premiums.

The highlighted factor was seized upon by those opposed to the proposition. Their argument was insurance providers would, should the proposition had become law, raise rates on insureds not eligible for the persistency discount in order to balance their rating plan. Unfair, came the cry.

The flaw in this line of reasoning is how it is rooted in a belief that everyone should be eligible for the same price of insurance regardless of any and all factors related to the insured -- driving record, years of experience, type of vehicle, and so on. It can be argued that the reason for opposing Proposition 17 was not an insistence that all discounts should be barred, but that it was not wishing to see the rates for others ineligible for the discount rise from their present level. However, the net effect is the same. The proposition's defeat forces insureds wishing to change carriers into choosing between accepting a higher rate or remaining with their present carrier.

What do you think? Was the defeat of Proposition 17 good or bad for consumers? What effect will the current system remaining in place have on insurance agents and providers? We want to hear from you. Thanks!

A Look At The Candidates For California State Insurance Commissioner

If you live in California, you know it was impossible to miss the fact there was an election yesterday. Let's take a look at the two candidates for state Insurance Commissioner, who this November will seek to replace current State Commissioner Steve Poizner, who lost badly in his attempt to win the Republican nomination for governor.

On the Democratic side, the candidate is Dave Jones. Jones is a lawyer whose political experience includes having served as first assistant to, then counsel for, Attorney General Janet Reno during the Clinton administration. Subsequent to this, Jones served on the Sacramento City Council from 1999 through 2004, when he won a seat in the state Assembly. He has been there ever since.

The Republican candidate for State Insurance Commissioner is apparently Brian FitzGerald, currently holding a narrow lead over Mike Villines with the absentee and provincial ballots yet to be counted. FitzGerald spent no money on his campaign, instead relying on a blog and a Facebook page to spread his message. FitzGerald has been a lawyer for twenty-five years and has worked in the California Department of Insurance for sixteen years as an enforcement attorney.

Quoting the information on their respective websites, the two candidates define their candidacy and the issues as follows. First, Jones:

1. Dave Jones will fight to make sure that insurers do not take advantage of consumers. He understands that when people pay for insurance, they expect their insurance to be there when they need it.
2. Dave Jones will hold insurers accountable and will work to keep insurance rates affordable. He will use the full authority of the office to make sure that health insurers do not engage in "medical recission" – the practice of finding reasons to rescind health insurance just when people are sick or injured and need it most.
3. Dave Jones has been a strong advocate for consumers in the State Legislature. He has chaired both the Judiciary Committee and the Health Committee; and he has successfully passed legislation that protects medical and financial privacy, prevents seniors from being abused, and improves health care.
4. Dave Jones opposes Proposition 17 because it could lead to more uninsured drivers on California roads. (NOTE: The proposition, which allows insurers to offer persistency discounts to auto policy holders regardless of whether the continuous coverage was with that particular carrier, failed to pass with a 47.9% Yes - 52.1% No vote.)
5. Dave Jones has a strong record of protecting the environment. That’s why he is endorsed by the Sierra Club. He also introduced the Green Insurance Act of 2010. This landmark legislation establishes environmental standards and protections in the insurance business, and provides incentives and tax credits for offering green insurance and making green investments.
6. Dave Jones was named Consumer Champion by the Consumer Federation of California. Capitol Weekly called him the Legislature’s most effective legislator.
7. Dave Jones understands that the decisions of the Insurance Commissioner need to be transparent. That’s why he has authored legislation requiring the Department of Insurance to obtain public input and hold hearings on major decisions.
8. Dave Jones is widely respected for his collaborative approach to problem solving, including working with colleagues across the aisle to obtain solutions.
9. Dave Jones is an advocate for comprehensive health care reform and has introduced legislation to control health insurance costs and to reform the health care system. Jones has also introduced legislation to prevent discrimination by health insurance. He is well aware that consumers have faced more than 100% increase of in health insurance costs in the last ten years, and that many are at risk of losing their insurance. Additionally, there are 6 million Californians without insurance.
10. Dave Jones has the training, experience and commitment to be our Insurance Commissioner.

Now, FitzGerald:

The State of California is in a very difficult time. Its recovery will require better governance and restoration of confidence. The continued functioning of the State and the regulation of its commerce ought to be approached on an agency-by-agency basis. The California Department of Insurance is one of those agencies. My contribution to lifting California out of its present situation would be to see that the Department does its job well and efficiently.

The Insurance Commissioner oversees the Department of Insurance. Insurance touches every aspect of Californians' lives and now major change regarding health coverage is coming from the national level, as well. California needs a Commissioner who can be an effective administrator from the outset. There is no longer time for someone to spend two years learning the job and then the next couple running for another office.

I have worked at the Department for more than 16 years as an enforcement attorney and know it well and what to do; in those instances when greater expertise is needed, I have recourse to the Department’s greatest resource: its employees. Over the years of enforcing the Insurance Code and regulations, my witnesses have been investigators, examiners, analysts and actuaries. I know who knows without resort to outside consultants. Better still, they know my work ethic and so do those in the insurance industry. Together, we have handled cases involving agents and companies, rating and underwriting practices, fraud and unfair claims.

My present work takes me to the Department offices, and those of other agencies, around the State. As Commissioner, I would continue that practice so as to listen to staff and see that they had all they need to perform their duties on behalf of California’s still growing population. I have pledged in writing not to seek other office and would concentrate on preserving Department integrity, stability and continuity. Press releases would be informational, not self-serving. As a regulator, I will continue to protect Californians, keeping insurance practices fair and regular, resolving complaints, punishing violations and allowing reasonable rates for those companies that do business here. My view is that commerce is vital to California’s recovery and, risk being part of commerce, the insurance sector provides important coverage products. Given this philosophy, my decisions on rates will be based on the Insurance Code and, given my frugal self-funded campaign, uninfluenced by any special interests.

What I have written so far is about what can be presently improved, but let us consider preparing for the future. As mentioned earlier, Washington has now intervened in health coverage. Whereas before the Legislature was reluctant to place too much authority in a commissioner and instead spread regulation among several State agencies, Congress has now shifted the paradigm. Insurance commissioners of all the States are charged with helping to implement the Patient Protection and Affordability Act.

Representations were made to Californians about the benefits of the Act, but part of that effort is figuring out what Congress passed. We are fortunate to have Department personnel who for years have made the subject of health care coverage their expertise and are laboring under deadlines imposed by the new law.

To a certain extent, the current Insurance Code with its protections adopted over the decades can help, but I see the need for its revision, holding investigatory hearings and conferring with the Legislature regarding enabling statutes to ensure compliance. Complaints as to health care service may be addressed administratively, but that is an after-the-fact approach. Since the Federal government has increased its role in the field, it is my intention to see that the Department regulates the regulator and that our State receives what it was promised.

Daily living in California requires available, affordable and reliable insurance for much of what we do and it is the purpose of the Department is to help Californians get what they need. To this end, I am already on the job, but am now asking you to allow me to do more by electing me Insurance Commissioner.

Thoughts? Leave a comment; let us know what you think. Thanks!