Consider the Crisis

Insurance is no doubt used in times of crisis — to recover from such events as a house fire, when a driver is in an accident, or a business suffers a loss, for example. But recently, California Gov. Arnold Schwarzenegger has proposed using insurance and its well-earned assets to solve, in part, another type of crisis. The state is facing a $24.3 billion budget shortfall and at press time, the Legislature was unable to approve the budget.

So far, Schwarzenegger has forwarded two proposals to the Legislature. The first, aims to seek a private party to purchase some of the State Compensation Insurance Fund’s assets for $1 billion. Selling some of the workers’ compensation insurer’s assets has three main objectives: 1) to maintain a sound workers’ compensation system; 2) continue with the SCIF as the insurer of last resort; and 3) achieve the highest value for the state, according to a spokeswoman for the Governor.

But what’s troubling is that the Governor’s proposal omits the Insurance Commissioner or Attorney General’s oversight from any transaction, leaving the state’s Director of Finance to act as agent for the state to sell a portion of or otherwise obtain value for SCIF assets and liabilities.

As critics of the Governor’s plan point out, selling SCIF is a complex matter, that could easily wreak havoc on the stability of workers’ compensation insurance rates. And when such a transaction affects a company that writes more than one out of every five workers’ compensation policies and is the largest insurance company in the state, Commissioner Steve Poizner is right in that his office should have at least some input or oversight on the matter.

The second proposal aims to raise $99.9 million by eliminating the current sentencing options for specified crimes that may be treated either as felonies or misdemeanors, making them punishable by a jail term rather than state prison. Insurance crimes are part of the list of crimes that would be downgraded. Reprioritizing certain crimes would result in incarceration cost savings, Schwarzenegger said.

Yet one wonders if the Governor has really thought through the consequences of this idea. If criminals know they won’t be prosecuted, what’s to deter them from doing more misdeeds?

“Taking the power out of the hands of the public prosecutor to charge someone with a felony crime will have a serious impact on public safety. Insurance fraud is a serious crime that demands serious consequences,” the Coalition Against Insurance Fraud, National Insurance Crime Bureau, National Health Care Anti-Fraud Association and the International Association of Special Investigation Units said in a joint letter.

Insurance may be “the DNA of the modern world,” as Willis CEO Joe Plumeri recently said, noting that without insurance available in times of crisis, buildings don’t get rebuilt, victims don’t get compensated, goods don’t trade, careers aren’t saved, global economic life is finished and millions of people remain in poverty.

But when the crisis is merely an effort to balance the budget — especially when the state seems to struggle with this monetary problem year after year — one has to ask if insurance is the appropriate solution.