Insurance Department grows as oversight mounts.

Industry turmoil increases number of regulatory challenges

Since the passage of Proposition 103 in 1988, the California Department of Insurance has more than doubled its staff and its budget and has become, by far the largest insurance regulatory agency in the nation.

In a speech to insurance activists last month, California Insurance Commissioner John Garamendi said he is restructuring the department so information will flow together and it will "become the best consumer protection agency in America."

In the last four years, both the staffing and budget for the department has doubled, said Calvin Smith, program manager for the California Department of Finance. But Proposition 103 is only one reason.

Staffing has increased from 482 employees in the 1988-1989 fiscal year to more than 1,100 authorized positions for 1992-93, Smith said. During the same time period the budget has grown from $35.9 million to $77.4 million, Smith said.

"This is not the norm. This is significant growth," Smith said. Most state departments and agencies have undergone massive budget cuts, especially in the last year when state departments trimmed about $700 million from budgets, Smith noted.

California's Department of Insurance far surpasses the size of other insurance departments in other states, according to a report by the National Association of Insurance Commissioners. New York's budget is second at $59 million and Texas is third at $56 million.

Michael Johnson, spokesman for the department, said that much of the growth of California's Department of Insurance has occurred because of the passage of Proposition 103. But there are other factors.

"The insurance regulatory scheme in California is more sweeping than in any other state," Johnson said. "Take for example, Massachusetts. It has rate regulation. The state simply sets a rate for a particular line of insurance. Here in California, every rate by each individual company has to be reviewed by the department."

There are only 859 people working in the Department of Insurance currently but the commissioner intends to increase staff to a total of 1,119 this year, Johnson said. "In recent years the department has been growing very quickly to meet the demands of Proposition 103 and it's taking some time to get all the people we need," he said.

But the state Department of Insurance has tripled its budget and doubled its staff in the last five years, also as part of a nationwide trend of insurance department growth.

Included in the budget this year are 18 new fraud investigators to work on workers' compensation fraud, and a highly sophisticated computer, Johnson said.

Garamendi said the computer will help the different departments to integrate information and process complaints as well as keep a tight rein on insurance companies.

Under the restructuring, Garamendi said, the legal department is connected to the enforcement department which is connected to the consumer complaints department. It is very important, Garamendi said, that the enforcement section is aware of complaints in the consumer division, for example.

There is a public policy section of the department in charge of writing future legislation, which is informed of the activities of the enforcement and consumer sections, Garamendi said.

The new computer system is equipped with a tracking system that automatically alerts department staff if a company is in financial trouble, Garamendi said. "You wake up in the morning and (the computer) says Aetna's in trouble," Garamendi said, adding that this was only an example of what the computer could do.

The computer will also make financial examinations easier for staff, he said. Previously, department staff had to add large columns of numbers using calculators and ledger paper, he said. The integration of information will help staff to act quicker, he said.

"If we get 100 complaints all at once that (an insurance company) is not paying its claims, we can get at it right away," Garamendi said.

State insurance departments have increased in size nationwide since the mid-1980s, said Kevin Hennosy, spokesman for the National Association of Insurance Commissioners. According to a study by the association, state insurance department budgets increased a total of 13.9 percent in 1991 over 1990.

The increases are due in part to increased regulation and examinations of the financial health of insurance companies, Hennosy said.

Only 12 states have elected insurance commissioners, and there doesn't seem to be any correlation between the growth of the insurance department and the elected commissioner except in California, Hennosy said.

"There is no doubt that Commissioner Garamendi has been extremely active in the number of public policy proposals the California department has proposed," Hennosy said. "We're seeing proposals here at the NAIC from California regularly," he said.