Insurance commissioner must balance conflicting interests.

THE insurance commissioner's power over what we pay for homeowners, auto and most commercial insurance means newly elected commissioner Steve Poizner has a greater impact on the pocketbooks of Californians than any other public official.

Poizner, a moderate with roots in the business world and public service, has to balance the two guiding perspectives he brings to the job: faith in the free market and a commitment to protecting the public. Given the uniqueness of the insurance market, Poizner needs to recognize that the only way to protect consumers and maintain a healthy market is to maintain the commissioner's role as a tough regulator and rulemaker.

Poizner will start his job with the enviable task of overseeing substantial price cuts in auto insurance. The consumer savings are associated with rules requiring insurers to base premiums primarily on a motorist's driving record rather than their ZIP code, a reform he pledged to fully implement while campaigning.

But quickly Poizner will find himself embroiled in a bitter battle over an important set of rules he promised to defend during the campaign. Insurers have threatened to sue to block regulations, issued by outgoing Commissioner John Garamendi, that establish guidelines to determine such rate-impacting factors as excessive profit, reasonable expenses and loss projections.

But defending the regulations is the easy part; the real test of Poizner will be whether he is actually willing to wield his regulatory authority on a day-to-day basis to keep rates low and unfair practices in check. The California insurance marketplace has seen a widening gap between the amount policyholders pay in premiums and what insurers pay out in claims. This ratio is a key indicator of price gouging and many insurers' rates deserve serious review.

Press or wail?

Several Los Angeles-based firms, for example, appear to be overcharging their customers based on the most recent data:

* Medical malpractice insurer SCPIE Indemnity paid out only $28 in malpractice claims for every $100 of premium paid by doctors and hospitals, about 43 percent less than the national average in 2005.

* Farmers Insurance used only 32 percent of business customers' premiums to pay commercial multi-peril claims.

* Fire Insurance Exchange (Farmers homeowners insurance affiliate) paid out 28 percent of what it takes in from customers, half the national average.

Several major insurers, including Farmers, are applying for across-the-board rate cuts for homeowner policyholders after Garamendi ordered comparues to open their books. Will Poizner actively press other insurers to lower rates or just wait and hope for the other finns to voluntarily drop rates? Insurers will call for a go-slow approach. Consumers who pay the premiums will be reluctant to wait.

On another pricing front, Poizner will face the complaints of real estate title insurance companies that do not like a Garamendi-initiated program reforming their selling practices and reducing rates. Title insurance is an expensive line-item associated with every home purchase or refinancing that rarely results in claims. Insurers will play on Poizner's laissez-faire instinct, but Department of Insurance staff has found broad evidence of the companies' anti-competitive behavior and widespread price gouging that should stoke the commissioner to implement the pricing reforms.

And these are just the battles left over from the outgoing commissioner. There will be many other debates for the new commissioner to call his own.

Poizner promised to stop insurers from engaging in the much-maligned but common practice known as "Use It and Lose It," in which insurers won't renew customers who have the audacity to file a legitimate claim. As an elected official, he will have to meet voters' expectations by demanding a change in industry practices.

Insurers, for their part, will likely pursue one of their pet goals: permission to use customers' credit history to determine insurance eligibility and premiums. Insurers have never proven that one's credit rating is more meaningfully related to a homeowner's risk of loss than, say, their hair color, but that won't stop company lobbyists from burying Poizner in a blizzard of "studies."

Although other states have allowed insurance companies to charge customers more if they don't have a stellar credit background, California has been a beacon of consumer protection in this regard and blocked insurance credit scoring. Poizner should stand fast and resist efforts to weaken the existing standard of protection.

This multi-billion dollar tug-of-war between the interests of consumers and those of insurance companies has been relentless since California voters passed Proposition 103 in 1988. Among other insurance reforms, that law made the office of Insurance Commissioner elective. Prior to 103, appointed commissioners (who usually had strong ties to the insurance industry) left consumers with little assistance and no leverage in the insurance marketplace. Nowadays, the California Department of Insurance is widely recognized as the nation's pre-eminent consumer protection agency, and the commissioner's legal obligation to defend the consumer from the vagaries of the insurance marketplace is bound by the glue of voter accountability.

As businessman Steve Poizner transitions to Commissioner Poizner he will find the demands of the insurance industry competing with his campaign promises of consumer protection. Success will require constant measure of what's fair, not who has the most lawyers and lobbyists pounding down his door.

Douglas Heller is the executive director of the Foundation for Taxpayer and Consumer Rights, a non-partisan and non-profit organization in Santa Monica.