Insurance Takes Advantage of Inside Access

By Peter Nicholas
Los Angeles Times
September 23, 2006

SACRAMENTO, Calif. -- With a onetime State Farm official and a former insurance lobbyist in top staff jobs, Gov. Arnold Schwarzenegger is repeatedly siding with insurers in legislative battles as they maneuver to fend off fees, fines and concessions to policyholders.

A veteran insurance lobbyist, Dan Dunmoyer, is the governor's deputy chief of staff, helping to craft his entire policy portfolio. Former State Farm official Kathleen Webb is Schwarzenegger's insurance adviser, vetting insurance-related bills and recommending which he should sign into law.

Both have given the insurance industry special access to Schwarzenegger's government and taken positions that protect insurers' financial interests. Webb, in particular, has met continually with industry trade groups and attended private meetings where insurance lobbyists plot strategy and discuss ways to push their agenda, her calendar shows. She has not recorded a single meeting with a consumer representative.

When insurance-related bills have crossed Schwarzenegger's desk, he has sided with -- or at least not opposed -- the industry nearly 9 times in 10, a review of 79 bills tracked by insurance groups shows. At other times, he has sought to kill or blunt legislation before it reached him.

"I don't know that I can point to one pro-consumer bill that has made it through and been signed by the governor in recent history," said Sen. Deborah Ortiz, D-Sacramento.

The governor vetoed one bill that would have extended for nine years insurance industry fees that pay for seismic research. He rejected another that would have barred insurers from raising auto rates for home health-care workers who use their car to assist low-income patients. He also vetoed a measure that might have required insurance companies, rather than the state, to pay the medical expenses of certain accident victims.

"People expected of Arnold Schwarzenegger independent advisers who would bring a fresh perspective," said Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights. "Instead, the governor has brought in State Farm and its cronies."

Meanwhile, insurance money has poured into Schwarzenegger's campaign accounts. Since he jumped into the recall campaign in 2003, he has collected about $4.4 million in donations from insurance interests, state records show.

Schwarzenegger promised as a candidate in 2003 that he would purge the capital of powerful "special interests." But he pleased environmental activists that year by hiring one of their own, Terry Tamminen, who was among the governor's most influential aides before resigning last month. And a former lobbyist for the California Chamber of Commerce, the state's chief business advocate, is the administration's top liaison to the Legislature.

Schwarzenegger has elevated insurance interests to senior levels of his government, giving them too much influence in the view of consumer groups.

The governor's aides insist the industry gets no special treatment. If consumer groups don't see the governor's staff it is because they haven't asked, they said.

"It's pretty much assumed that under this administration we were not going to get anything meaningful signed," said Amy Bach, executive director of United Policyholders, a nonprofit group that offers information to the public on insurance matters.

Bach added: "As an adviser, it's incumbent on her (Webb) to seek us out."

For Dunmoyer's part, his involvement in insurance issues is limited to offering "expertise" to colleagues inside government who are responsible for insurance matters, said Adam Mendelsohn, Schwarzenegger's communications director.

"No industry or organization gets a more sympathetic ear from this administration to the exclusion of another industry or organization," Mendelsohn said.

But insurers see in the governor a reliable ally. Stephen Lilienthal, chief executive officer of CNA insurance companies, wrote in a June letter soliciting money for Schwarzenegger's re-election that the governor "has been a critical first line of defense" for the industry.

CNA, a commercial insurer, has spent $275,000 lobbying in Sacramento since Schwarzenegger took office.

In 2004, former Assemblyman Darrell Steinberg, a Sacramento Democrat, introduced a bill that would have barred insurers from refusing coverage to nonprofit developers. Housing activists said the insurance industry was crimping the affordable-housing market by engaging in such practices. Insurance companies denied they had done so.

A meeting between the two sides took place July 14. Among the two dozen lobbyists speaking for the insurance industry was Dunmoyer, then president of the Personal Insurance Federation of California. Housing advocates said the lobbyists vowed to kill the bill.

Less than a week later, on July 20, the Schwarzenegger administration sent a letter to Steinberg saying the bill went "too far."

Fearing defeat, Steinberg changed his bill so it no longer banned the industry from denying coverage to the developers and required simply that the state Department of Insurance study the matter. Stripped of its original purpose, the measure passed the Legislature and Schwarzenegger signed it.

Insurance lobbyists said it is hardly the case that they get everything they want. They said they've endured their share of disappointments: friendly bills vetoed, onerous regulations approved.

"We don't feel we're getting special accommodations," said Rex Frazier, who succeeded Dunmoyer as president of the Personal Insurance Federation. "... We feel we have to outwork our opponents just to mitigate the damage."

But pro-insurance voices have been gaining clout in Schwarzenegger's government. After the defeat of his ballot initiatives in the November 2005 special election, Schwarzenegger ordered a shake up. In came Dunmoyer and Webb.

Dunmoyer had spent the previous 16 years at the Personal Insurance Federation, which represents State Farm, Farmers, 21st Century and other insurers. Companies that are part of the federation have donated about $213,000 to Schwarzenegger's campaign accounts.

Since joining the government, Dunmoyer said, he is scarcely involved in his old profession.

"My role in insurance here is phenomenally limited," he said in an interview.

Appointment records and interviews show that Dunmoyer is involved.

In April, he spoke at an event hosted by State Farm, telling employees "what the top priorities will be for the governor," according to the agenda.

That same month, Dunmoyer appeared before the political action committee of his old employer. A trade association newsletter describing his appearance said Dunmoyer urged the group to "let their legislators know the active role agents play in the growth and financial health of their communities."

Dunmoyer also played a role in an issue that he was involved in as a lobbyist: the Seismic Safety Commission.

Insurance officials are unhappy that the commission's work is underwritten by a 7-cent-per-policy fee. Dunmoyer shared that view when he was a lobbyist, sending a letter to the administration and lawmakers in 2004 likening the fee to an "illegal, unfair tax." He takes much the same position now.

Sailaja Cherukuri, a legislative aide, met with Dunmoyer and others in the governor's office in March to talk about the future of the commission, which researches ways to help California withstand earthquakes.

Dunmoyer's position was that the commission's funding should come from "something other than the insurance industry," Cherukuri said.

Asked about Dunmoyer's role, some lawmakers said a lobbyist shouldn't be able to step out the door and into a job in the Capitol. A cooling-off period would be preferable, to discourage a revolving door between government and industry, they said.

"We as legislators have a waiting period where we're barred for one year" from lobbying former colleagues, Ortiz said. "There ought to be a comparable one-year waiting period for lobbyists."

Webb was not a lobbyist for State Farm -- her job was legislative specialist. But part of her function was urging company employees to speak with lawmakers in hopes of swaying votes. Now it is the industry's job to sway Webb.

To date she has sent the governor's office written recommendations on 60 insurance bills. The governor's office declined to make the letters public.

Administration officials say Webb does not have the final word on whether Schwarzenegger should sign or veto insurance bills. Her recommendations go to one of the governor's legislative liaisons.

But she confers often with the insurance industry. Calendar records obtained through the state's Public Records Act show that from January to July, Webb met 30 times with insurance lobbyists and officials -- and not once with consumer groups. At such meetings, she talks with lobbyists about pending bills, among other matters.

Webb has twice attended the private meetings that insurance lobbyists hold to strategize about bills. These sessions are at the headquarters of the Personal Insurance Federation.

In an interview, Webb said she went to the meetings to "get a consensus from them on certain legislation" and to learn "what's on their radar screen."

She said she invited insurance lobbyists to meet with her in February to learn where they stood on a bill by Assemblyman Mark Ridley-Thomas, D-Los Angeles, whose measure would require insurers to disclose any investments they make in low- and moderate-income neighborhoods. That information would then be disclosed on the state Insurance Department Web site.

One opponent of the bill is the American Insurance Association. Webb was another. There is no need to demand such reports, she said, because "the insurance industry is already doing it on their own." Disclosure of such information is now voluntary; the Ridley-Thomas bill would make it mandatory.

Asked if she reaches out to industry opponents, Webb said she has greeted them at meetings and passed out her business card, but none has bothered to call. Mark Savage, senior attorney for Consumers Union in San Francisco, said he has met with some insurance advisers who preceded Webb but has not heard from her.

"There's been no outreach to me," he said.