Insurance commissioner candidates face tough issues. (Election 2002 - Getting Out The Vote).

A decade ago John Garamendi was running for insurance commissioner after a tumultuous period in which big rate hikes in auto, homeowners and business coverage spawned a revolt leading to the passage of Prop. 103.

Now, 12 years later, residents and businesses are again facing big rate hikes across all lines of insurance as the Democrat, and odds-on favorite to win, is making his second run at the job.

The similarity ends there.

Once in office in 1991, Garamendi sparred with the industry over implementation of Prop. 103, which tightened regulations, rolled back rates and ultimately forced insurers to give back $1.2 billion in refunds.

This time, don't expect such fireworks, whether Garamendi is elected or Republican challenger Gary Mendoza manages an upset.

"The situation today is dramatically different that where it was in 1991," said Garamendi, 57, who left office in 1994 for an unsuccessful run for governor and is now a rancher. "Where we are today is an insurance industry that is totally upside down."

While the industry still has its share of critics, there's a growing belief that the financial turmoil is not entirely of its own making -- and thus the state's top insurance regulator will be required to take a more cooperative approach.

Insurers have suffered big losses from the equity markets, fear of mold is driving up costs, and half the workers' comp market has gone to the state fund of last resort.

"What the next commissioner is going to face is the perfect storm of insurance dynamics," said Dan Dunmoyer, president of the Personal Insurance Federation of California, a trade group.

To be sure, the next insurance commissioner will still be under strong pressure from consumer advocates to get tough on the industry.

"We need to strengthen the department's regulatory focus, strengthen its consumer protection mission and encourage more insurance companies to do business in the state," said Mendoza, 47, a former state commissioner of corporations from 1993 to 1996 who later worked in the administration of former Los Angeles Mayor Richard Riordan.

But both candidates are talking about working with the industry to resolve problems facing it, consumers and businesses.

Garamendi calls the state's workers compensation in "total meltdown" and says fraud is a major problem he wants to attack. He also wants to encourage more out-of-state companies to enter the market.

And while consumer advocates are blaming insurers for the price and lack of availability of homeowners insurance, he said there is a "great deal of confusion" about the role mold claims are playing that has to be investigated.

Insurers have been hit with rising numbers of ever more costly mold claims related to water damage as fears have risen that mold can lead to severe health problems. Citing increasing losses in its homeowners line, State Farm Insurance Cos. has stopped writing new policies and has tightened underwriting standards for existing policy holders.

Garamendi also wants to form a task force to examine the causes for the high cost of health insurance, though the department has regulatory power over only companies controlling about a fifth of the market. HMOs are regulated by another agency.

Mendoza, a Latino who paints himself as moderate Republican, says new regulation by itself will not solve all of consumer's problems.

"There are fewer and fewer companies offering coverage. A well-functioning market is one where companies are fighting for customers' business," he said.

He wants to reform the workers' comp system to reduce fraud and is calling for tort reforms that would reduce litigation that he says is limiting the availability of construction defect insurance. He also wants to commission independent studies that would establish the actual danger posed by mold.

However, Mendoza appears to be fighting an uphill battle.

In early September, the Field Poll placed him just five points behind Garamendi, a good showing given the far wider name recognition of his opponent. But earlier this month a Los Angeles Times poll showed that margin had grown to 22 points.

Mendoza claims his own polling indicates he is within striking distance, at seven points. But he could be handicapped by the legacy of former Republican commissioner Chuck Quackenbush, who was forced from office two years ago after revelations that he waived billions of dollars in fines against the industry for its mishandling of Northridge earthquake claims in exchange for millions in donations to foundations he created.

"There seems to be a suspicion that after Quackenbush this is not a race that a Republican can win," said Doug Heller, a consumer advocate with The Foundation for Taxpayer and Consumer Rights, which sponsored Prop. 103. (The foundation gives high marks to Garamendi for his first term in office, but does not endorse specific candidates.)

Mendoza has tried to hit Garamendi on Executive Life Insurance Co. -- the company Garamendi seized in 1991 after its junk bond portfolio dropped in value. As a result of the seizure and the sale of its $6 billion portfolio for $35 billion, thousands of policyholders lost money.

Garamendi has said he was forced to seize the company because of its precarious financial position.