California insurers are fuming over a last-minute regulatory action from former Insurance Commissioner John Garamendi that will require them to pay for the costs of more challenges to proposed rate increases. They are calling upon new Commissioner Steve Poizner to reconsider Garamendi’s action.

Under California’s Proposition 103, when a policyholder or a third party consumer group representing policyholders files a challenge to a proposed rate increase, the insurance company must pick up the tab if the state Department of Insurance rules in favor of the challenger.

These so-called “intervener fees” which typically run between $15,000 and $30,000 per case but could go as high as $60,000 have proven to be a lifeline for consumer groups such as the Foundation for Taxpayer and Consumer Rights, helping to pay for actuaries and other experts they might call in to successfully dispute a proposed rate increase. In the last two years alone, the foundation has collected fees in at least two dozen instances.

Insurance companies grudgingly paid the fees, chalking it up as a cost of doing business. But their attitude abruptly changed when they learned about the “clarifying regulation” Garamendi promulgated last December on intervener fees.

The regulation requires insurers to pay intervener fees even if there is no official Insurance Department proceeding. Frequently, insurance companies will withdraw rate increase proposals before they can be officially heard by the department, especially if they learn of a challenge. The new regulation also provides for the fees in instances not previously covered, such as disputes over the establishment of classes of rate payers. (That would have provided for fees in the recent dispute over the use of ZIP codes in setting automobile insurance rates.)

Insurance companies are not only complaining about the expansion of the fees which they contend will provide attorneys more reasons to litigate but also demanding the department release details about how it calculates the fees.

“As we are paying the bill, we are seeking more disclosure of this entire intervener fee process,” said Jerry Davies, a spokesman for Farmer’s Insurance Group, a Los Angeles unit of Swiss insurance giant Zurich Financial Services.

As would be expected, consumer groups are strongly backing Garamendi’s action. Doug Heller, executive director of the consumer foundation, said the intervener program needs to be expanded because ratepayers and their non-profit representatives don’t have the resources to challenge rate increases as often as they should. “This will help,” he said of the expanded regulations.

He added that the intervener fee program serves a fundamental role in keeping insurers honest and protecting ratepayers: if a challenge to a rate increase succeeds, it means that the rate increase was not justified in the first place.

“Can an insurance company attempt to unfairly raise rates on customers and then not be responsible when their attempt to price gouge is exposed?” Heller said.

Both sides said they do not intend to go to court over the dispute, but both also acknowledged it might end up there anyway.

Stay tuned

Climate Change Regulation

It’s a meeting so anticipated that state organizers have already sent out notices encouraging people to participate online rather than attempt to show up in person.

This Tuesday, Feb. 27, the Market Advisory Committee of the California Environmental Protection Agency is set to hold its first public meeting to begin crafting the emissions trading regulation component of AB 32, the landmark greenhouse gas reduction law passed by the Legislature and signed by Gov. Arnold Schwarzenegger last year.

Under the law, the committee has until June 30 to craft a design for the market-based compliance program, under which greenhouse gas emitters including power plants, oil refineries and cement kilns must reduce their emissions to 1990 levels by 2020. The agency will be facing competing pressures from businesses seeking maximum flexibility and environmental groups seeking greater state regulatory control over the process.

Online Certification

In an effort to ease access to state contracts, the State and Consumer Services Agency has introduced online certification for small businesses.

Certified businesses can receive contract bid preferences and e-mail notifications of contracting opportunities, which can give these businesses a leg up in competing for state contracts.

For years, small businesses have complained that the process the state uses to award contracts is too cumbersome and complex for companies their size, forcing many to pass up bidding opportunities.

In announcing the online certification, State and Consumer Services Agency Secretary Rosario Marin said the certification process should only take a few minutes to complete, if the business owner has the required financial information handy. There is no fee for the certification.

“Businesses can get certified today and conduct business tomorrow, and start funneling dollars into their local economy,” she said.

Staff reporter Howard Fine can be reached by phone at (323) 549-5225, ext. 227, or by e-mail at

[email protected]

.