Can the California Insurance Commissioner Stop 'The Terminator?'

(MoneyWatch)  California is a cauldron where new ideas bubble up and then spread across the nation. That's why a legal wrangle between Insurance Commissioner Steve Poizner and Gov. Arnold Schwarzenegger's administration could have larger implications than simply a battle between one man who wants to be governor and one who is leaving with his legacy in limbo.

Arnie is best remembered as the hero of action movies like "The Terminator," but as the governator he resembles the 98-pound weakling who gets sand kicked in his face. Desperately seeking a way to pass the state budget, which is "seriously late and in the red," he's latched on to a partial solution: sell a billion dollars worth of assets from the State Compensation Insurance Fund (SCIF) and put the proceeds into the state treasury.

Turn on the neon sign that says "Free Money" and you'll have no trouble getting approval. The bill to bilk $1 billion from the SCIF sailed through the legislature and was signed by the governor.

Not so fast, said Poizner. He slapped a lawsuit on state officials, claiming California was "pilfering" funds that were supposed to be used to pay the claims of injured workers.

Let's backtrack. The SCIF was set up as the "insurer of last resort" to pay the claims of workers in dangerous occupations who couldn't find their own workers comp or get it from their employers. Sounds a bit like the "public option" that President Obama and the Democrats are proposing for the national health insurance program.

The SCIF built up a cash reserve and now politicians, starved for money because of past excesses, are trying to get their grubby little fingers on it.

"We believe the state is sitting on an asset that has significant value," said one state official. By one account, it's worth about $25 billion.
Perhaps, but Poizner, who already has a website for his run for governor, says it doesn't belong to the state. And others agree. "Selling SCIF at fire-sale prices could further destabilize the workers' comp market in California," says Los Angeles-based Consumer Watchdog. The case has yet to be decided. But Poizner points out that similar attempts to grab funds in Colorado and Utah have been turned down by the courts.

So mull this over. Since Hurricane Katrina some property insurers like Allstate argued that there should be a "National Catastrophe Fund" to which insurers pay in during good years so they can withdraw funds when disaster strikes. But other insurers like Travelers debunked the idea. They said that if the government created a pool of money, politicians would find a way to grab it.

In California, the governor and legislature are doin' what comes naturally.