INSURANCE COMMISSIONER POIZNER CONTINUES TO DEMAND ACCOUNTABILITY

"As Insurance Commissioner, Steve Poizner's leadership style is really coming through: quick and decisive. He's a leader who's really showing how to get things done: whether it's speaking up for homeowners in the aftermath of last month's fires or rooting out bureaucratic rot at the State Compensation Insurance Fund, Steve Poziner is about action."

Ron Nehring, Chairman, California Republican Party

Millions Wasted By State Fund
December 11, 2007 By Marc Lifsher, Los Angeles Times Staff Writer

SACRAMENTO -- California's scandal-plagued government-run workers' compensation insurance company spent more than half a billion dollars over the last decade for outside marketing help that often provided "minimal services," a scathing new state audit shows.

About half that money went to organizations with direct financial ties to two former board members of the State Compensation Insurance Fund, said the audit to be released today. The company sells workers' compensation insurance to 220,000 California employers.

Some marketing groups were paid millions of dollars for merely sending members quarterly newsletters, providing few other services, the report said.

The report paints a picture of an obscure rogue operation with more than $22 billion in assets, little oversight, minimal public checks and balances, and indiscriminate spending with little attention until recently from top state officials such as the governor and the insurance commissioner.

The quasi-governmental company has been under investigation for more than a year. Since the fall of 2006, State Fund has replaced two board members, several marketing executives, the general counsel to the board and the president. The California Highway Patrol, the state Department of Insurance and the San Francisco County district attorney's office are conducting a joint criminal investigation.

The 10-month audit offers the first comprehensive look at the extent of organizational and management problems at the San Francisco-based agency, which was created by the Legislature in 1914 and is run by state employees. Its five-member board, appointed by the governor, meets in secret, contending that it is not subject to the state's public-record or open-meeting laws.

In response to the audit, State Fund said it recognized "serious shortcomings" in the way it managed group insurance in the past. Responsible executives have been replaced, and "the new program contains explicit safety requirements, safety performance metrics and auditing requirements," it said.

Ordered by Insurance Commissioner Steve Poizner, the audit was conducted by RSM McGladrey Inc., an international business consulting and accounting firm.

It cited lax corporate oversight and governance at State Fund, loose control of more than $300 million spent on technology vendors and unnecessary payments of nearly $20 million in penalties for delaying the processing of medical bills and disability benefits for injured workers. It also questioned the need for a fleet of 2,000 motor vehicles -- 1 car or truck for every 4 employees.

The audit "revealed what we expected -- serious structural and operational issues," Poizner said in a statement. He said he would work with the governor and state legislators next year to pass bills needed to restructure State Fund's board, management and business practices to "ensure that it operates lawfully and in a manner that is not hazardous to its policyholders, injured workers, creditors or the public."

Full Article Text: http://www.latimes.com/business/la-fi-statefund11dec11,0,1562542.story?coll=la-home-center  

 Q&A: Steve Poizner, California Insurance Commissioner
December 9, 2007

Poizner, a successful businessman/entrepreneur, was elected state insurance commissioner in November 2006. Other than Gov. Arnold Schwarzenegger, Poizner is the only Republican currently holding a statewide office in California. The wildfires that swept Southern California have put him at the center of the region's rebuilding effort. He was interviewed Nov. 29 by members of the Union-Tribune's editorial board.

[SDUT] Let's talk about how insurance companies are addressing the fire victims. Four years ago when the fires occurred there were enormous problems. We don't seem to be having those kinds of problems now. Isn't that the case? Are the insurance companies delivering on what they're supposed to be doing?

[Poizner] So far, so good. I'm closely watching it. As insurance commissioner for a year, obviously I wasn't commissioner back in 2003 but I started by studying very carefully what happened in 2003 and there was a whole host of problems, as you know. We decided to take a bit of a different approach. As the insurance commissioner at the department of insurance we really count on a few things right at the very beginning.

What's that?

First of all, I called personally the CEOs of all the insurance companies. And the first thing I told them was you guys better get out here to these evacuation centers. I called them from Qualcomm Stadium. There's 20,000 people here living here, you'd better get here in your mobile vans and you'd better start cutting checks for room and board now. And by the way, the law requires that insurance companies pay living expenses even if their house isn't damaged at all, but if they're forced to evacuate by an official evacuation order, then it's two weeks of living expenses that they're eligible for. So the insurance companies did come en masse. And I think one of the reasons why the evacuation centers got emptied out as quickly as they did is because lots of checks were written right on the site. And so I was pleased by their reaction there. And the second thing I did was to make sure that the insurance companies gave me whatever feedback they needed to give me about their ability to quickly process clients. As insurance commissioner my key duty is to get people back up on their feet as quickly as possible. I do estimate about $2 billion worth of damage, personal property damage.

That would be covered by insurance?

I was about to say, about 80 percent of it will be covered by insurance. So insurance proceeds, about $1.6 billion, will be the major source of money to rebuild San Diego.

Let me clarify about what was covered and what wasn't. I saw a figure that said 97 percent of the homes that were lost were covered by insurance. Is that about right?

That's about right. I'd have to check. I'd have to get back to you on the exact (percentage).

So the 80 percent would cover nearly all of the homes that were lost. What's in the 20 percent that's not covered?

The few businesses or (outbuildings) or other pieces of property that just weren't insured at all. And so that's pretty typical in these natural disasters is that, at least in California, when there's a major natural disaster, 80 percent of the property that's destroyed has some insurance coverage.

What are you doing to deter the predictable fraud perpetrators?

That's a whole other problem, and all of these scam artists that show up. Nipping that in the bud early on has been a major success, as well. And we're pretty much implementing here what we did in the South Lake Tahoe fires a few months ago. In fact, as we speak today I have dozens of my fraud investigators - these are police officers - working here in San Diego undercover, in partnership with the district attorney here and the Sheriff's Department, and we created a task force together. We've gotten permission from homeowners to pose as homeowners and these scam artists show up and we arrest them. We've arrested 10 people so far. Two of them have been looters early on. And we were just helping law enforcement protect homes. But eight people have been arrested for pretending to be a claims adjustor or pretending to be a contractor. Unlicensed people. And they'll go to homeowners and say I'm a contractor, I know you want to rebuild, if you give me a deposit of a few thousand dollars I'll use that to go to Home Depot and start the rebuilding process. And that's the last time you'll ever see these people. And the same thing with claims adjustors.

 What is the penalty?

That's a felony and you go to jail.

What is the typical homeowners problem with underinsurance?

First of all, the vast majority of people have no problem at all. And that's the good news. But there's some percentage of people that are underinsured because they haven't updated their insurance company in many years or they decided I simply don't want to pay a thousand dollars per year, I only want to pay $800, what can I get for that? So there is some percentage of the underinsured situation that's the problem of the homeowner, and the homeowner is just going to have to live with that consequence. They can go to FEMA, they can go to SBA. Those federal agencies don't care why you're underinsured. They'll give you grants or loans no matter what.

Does the typical homeowner in California have an insurance policy that covers replacement costs, not just a lesser amount?

It varies. But most people have replacement cost. But what's created this controversy is that the insurance industry used to offer guaranteed replacement cost. And then after the Oakland fire there were a lot of abuses there where people ended up rebuilding homes that were worth a lot more than the home that burned down. And so the insurance industry ended up paying most of the claims and then stopped offering guaranteed replacement value.

Full Article Text: http://www.signonsandiego.com/uniontrib/20071209/news_lz1e9qanda.html 

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