There is no question that the past three years have been remarkable ones in the history of Californias workers compensation system. It is the next five we shall think about in this piece.

Much remains unsettled, including whether insurance companies are delivering on what many consider to be substantial savings from these new laws. By most objective measurements, the market is indeed responding, and it appears to be doing so in a way that will not over time bring about the catastrophic results that occurred less than a decade ago. Still, it is never enough. It is safe to assume that workers compensation will again play an important role in statewide elections in 2006, and because of that the new Insurance Commissioner can be guaranteed to inherit a daunting task.

Over the years, the Department of Insurance traditionally has deferred to the Division of Workers Compensation to enforce many of the laws covering the workers compensation system. Insurance Code requirements (such as solvency) are overseenat least in theoryby the Department of Insurance, and Labor Code requirements (timely payment of benefits and resolving disputes) are overseen by the Division of Workers Compensation. This nice, tidy symmetry remained the status quo for some time, until recently upset by the legislature when it decided that the Department of Insurance could be in charge of training and licensing all claims people on the intricacies of the workers compensation system, whether employed by an insurer, a self-insured employer or a third-party administrator (TPA).

But the Garamendi Department, likely with direct advice and encouragement from plaintiffs and applicants counsel, is prepared to do much more, and there is little in the Insurance Code to stop it.

The Commissioner sent a request to the largest workers compensation writers asking about their handling of certain types of medical claims.

This was prompted by much-publicized concernsgenerated mostly by applicants attorneysabout how injured workers were being treated as theyand wetransition from the old law to the new. This request was sent pursuant to the authority of the Commissioner to examine the conduct of its licensees. Those in the industry call it the market conduct examination authority.

The Department is analyzing the results of these requests. Depending on what it uncovers, the Department may decide that it too needs to regulate the claims conduct of insurance companies under the Unfair Claims Settlement Practices Act. With newspapers the length and breadth of the state reporting on delayed and denied benefits in the same paragraph as record low loss ratios, the role of the Commissioner in claims is ripe for reviewwhich conveniently wont happen until after the election.

Commissioner Garamendi also has said, repeatedly, that he doesnt have authority to set rates. He has said, for the time being, that such authority isnt advisable because of the need to restore a competitive insurance marketplace and protect continuing and marked improvement in the financial condition of State Compensation Insurance Fund, largest workers compensation insurance writer in the nation.

Instead, the Commissioner has badgered and cajoled insurers to reduce costs to employers. To date, he has approved slightly, but not irresponsibly, inflated pure premium rates and then used that to pressin all senses of that wordthe market to deliver more in premium reductions. The legislature was content, this year, to leave the issue of rate regulation as a dark cloud on the horizon, apparently reasoning that the Commissioner shouldnt have all the fun bashing the industry, especially as long as no real harm is done and certainly as long as contributions are to be had.

This bluster also will spill into the Commissioners campaign if there is an advantage to be had by aligning oneself with the notion that an elected official, term-limited, will somehow possess the skill and understanding to be a better determiner of the price of workers compensation insurance.

For a Democrat, this means currying favor with labor unions and applicants attorneys whose crusade for price controls has been vocal and well documented. For a Republican it is more of a high-wire act, acknowledging that one small business complaining about premiums is more newsworthy than a thousand that are not. The free-market argument falls short because of the insolvencies of so many carriers as a result of incompetents masquerading as senior insurance executives.

Also percolating in the Department are regulations soon to be proposed governing reinsurancea subject more arcane than workers compensation, if that can be imagined.

The Department has a long, painful and costly history with reinsurance and workers compensation when it comes to insolvencies. Hundreds of millions of dollars are claimed but not paid into the estates of several carriers liquidated years ago. This does not sit well with the Department. Because it doesnt like the game, it has decided to change the rules.

Although it is open to fair debate about how uniform regulation of insurance should be among the 50 states, one area where uniformity should be accepted as a given is reinsurance. That message is lost on the Garamendi Department. When this set of regulations is finalized, look for it to be litigated before the ink is dry.

That, combined with the issue of whether TRIA is extended, puts a serious cloud on the reinsurance horizon for California workers compensation insurers and their policyholders. As we all know, the less available the reinsurance, the more expensive the primary insurance. The reinsurance issue will go a long way toward keeping rates high.

Which brings us to the hallmark of being a successful elected Insurance Commissioner. There is no shortage of problems, but there is a dearth of politically palatable solutions. Consequently, the skill in that position is based on the ability to make sure the tough decisions are made by your successor.

If you dont, holding the office of Commissioner is the political equivalent of committing seppuku with a butter knife. Just ask Chuck Quackenbush. In other words, issues such as solvency, dual regulation of claims practices, rate regulation or reinsurance regulation should be identified and exploited for their maximum rhetorical value, but resolving these issues? Not on your watch.

And especially not on the Garamendi watch.