State Sen. Lawrence Walsh believes insurance companies doing business in Illinois wield an enormous amount of political clout.
First elected seven years ago, the Will County farmer tried to stop insurance companies from using credit information to determine premium rates because he thought it would help insurance agents in his Joliet-area district more easily sell homeowner and renter policies.
Insurance companies “sure do have a lot of power,” he said as he recounted how his bill was bottled up in the Senate Rules Committee within days of a meeting with insurance industry lobbyists who tried to convince him it would hurt the state’s insurance agents.
Instead of Walsh’s bill, the industry got behind another that permitted insurers to use credit scores to determine who to insure and what rates they should pay. With that support, it was introduced and quickly adopted.
It is one example of the clout the industry wields in Springfield. Insurers are among the big spenders when it comes to political contributions. Since 1995, insurers have given about $6.9 million to lawmakers, and elected officials and candidates of both parties.
Walsh’s worries about the industry’s growing power in Illinois mirror those of Florida legislators and homeowners who have complained insurance companies pressured the Florida legislature for changes that have chipped away at consumer rights.
Most evident, in the wake of Hurricane Charley, are higher deductibles many homeowners must absorb in trying to repair or replace their tattered homes.
Insurance lobbyists pushed for, and the Florida legislature created in 1993, a hurricane catastrophe fund to reimburse insurers for some hurricane losses. It then raised homeowner deductibles to as much as 5 percent of the value of a house, forcing homeowners to assume more of the risk.
“The problem with all that is that it has caused the legislature and governor and all the leaders of this state to give in to the insurance industry and let them write the way they want to do business in Florida,” Florida state Sen. Ron Klein said.
Criticism peaked Friday as the industry indicated it would force Florida homeowners to pay their deductibles twice if their home, which was damaged by Hurricane Charley on Aug. 13, is unlucky enough to be damaged by Hurricane Frances, slated to slam ashore in Palm Beach County Saturday.
Big insurance deductibles are just one of the changes Florida’s commercial insurers have pushed through the legislature in the past decade. The industry has also won the ability to limit payouts and raise rates on major insurance lines such as homeowner’s, automobile, medical-malpractice liability, nursing home liability and worker’s compensation policies.
Robert Hunter, the former insurance commissioner for Texas and now an insurance expert for the Consumer Federation of America, says insurance companies hold almost all the cards in negotiations over rates and other policies.
“The path of least resistance for a state insurance commissioner is don’t take them on,” he said, noting that “nobody comes in representing the consumer.”
In Illinois, insurance companies don’t even have to ask permission to raise rates. They simply file new rates with the state.
“We don’t have the statutory authority to review rates,” said Mike Hessler, deputy director of the insurance division, which is a part of the state’s financial-services department.
He said the division polices the industry by auditing companies’ financial statements to ensure solvency and by making sure firms deliver on the promises they make to consumers.
“Consumer protection is our utmost goal,” Hessler said.
Despite the lack of rate controls, the state’s insurance regulation helps consumers, said Rep. Frank Mautino (D-Spring Valley), chairman of the House Insurance Committee.
“It is an open competition market which has basically kept a lot of companies domiciled in Illinois and given us pretty decent rates because there are a lot more companies vying for business here,” said Mautino, who sponsored the legislation giving insurance companies the right to continue using credit reports.
Kevin Martin, executive director of the Illinois Insurance Association, a trade group based in Springfield, agreed.
“The regulatory system works and there is consumer protection,” he said, noting that 460 companies are licensed to sell insurance in the state.
Illinois isn’t alone in tempered regulation of the industry. Few states stand up to the firms.
Until two years ago, New Jersey routinely battled the insurance industry over automobile rates. But after a decade of insurance companies abandoning their customers, the legislature and Gov. Jim McGreevey revoked many of the restrictions on rate increases that the companies had fought. As a result, several firms, including GEICO, have said they will resume writing policies.
Only California regularly goes toe-to-toe with the industry.
More Top Picks Gloves Plants
The state successfully fought recent efforts by some major insurers to raise homeowners and auto premiums, and it has flatly barred the use of credit scoring, according to John Garamendi, California’s elected insurance commissioner.
“State Farm actually refused to write new policies in California for a six-month period. I said fine, there are others that will,” said Garamendi. “They’re back now writing insurance because California is too big and too important a market to ignore.”
Garamendi’s job was created in 1983 by the adoption of Proposition 103, which also abolished the insurance industry’s antitrust exemption within California. As a result, the state’s attorney general forced insurers to back down when they threatened to stop writing homeowner insurance in the state following the devastating Northridge earthquake in 1994.
Now U.S. Rep. Michael Oxley (R-Ohio), chairman of the powerful House Financial Services Committee, is proposing legislation that would strip states of their remaining power to regulate rates.
Oxley says he wants insurance regulation in the country to “move as close as possible to an Illinois-style free-market system for consumers.”
“The really outrageous thing about the insurance industry is that they are going to Oxley saying we need a more competitive market, when they really want freedom over how they set rates,” said Birny Birnbaum, executive director of the Austin, Texas-based Center for Economic Justice.
“States allow the insurance companies to cherry-pick the most profitable lines and get rid of the coverages that might not be profitable,” he said. “Their [insurers’] notion of managing risk is to push it off onto consumers.”
– – –
Top 10 insurance contributors
These insurance industry organizations were the top contributors to Illinois politicians. Here’s what they gave between 1995 and 2004:
%%
Independent Insurance Agents & PAC $712,472
CNA Insurance & PAC 395,975
Allstate Insurance & PAC 353,914
Illinois Life Insurance Council & PAC 311,326
Fremont Compensation Insurance 279,975
Illinois Insurance Association & PAC 250,111
Kemper Insurance Co. 236,218
American Insurance Association 210,643
Trustmark Insurance Co. & PAC 187,171
American Family Insurance 153,307
%% Source: Institute of Money in State Politics at FollowTheMoney.org.