Analysis of the 2008-09 Budget Bill: General Government

Department of Insurance (0845)

In California, the Department of Insurance (DOI) is responsible for regulating insurance companies, brokers, and agents in order to protect businesses and consumers who purchase insurance. Currently, there are about 1,300 insurers and 268,000 brokers and agents operating in the state.

The budget proposes total expenditures of $224 million for DOI in 2008–09. This is $6 million, or 3 percent, more than estimated current–year expenditures. The Insurance Fund, which supports DOI operations, derives its revenues from regulatory assessments and fees. The budget proposes a staffing level of 1,272 positions for 2008–09, which is the same level provided in the current year.

Budget Provides No Staff for Collection of Special Assessment

The budget provides no funding or positions for collection of the proposed “special assessment” on commercial and residential fire insurance polices. Should the Legislature adopt the proposal, we recommend that it direct the department to report on the level of administrative resources required to implement the proposal. The department should also identify and report any potential issues related to the proposal’s implementation.

As part of the 2008 special session, the Governor proposed legislation to establish a “special purpose assessment”—equivalent to 1.25 percent of the premium—on commercial and residential fire insurance polices to support the firefighting activities of the Office of Emergency Services, Department of Forestry and Fire Protection, and the Military Department. The budget proposes to use the assessment revenues both to offset General Fund reductions (in two of these departments) and to expand program activity (in all three of these departments). The assessment, which the administration estimates would generate approximately $125 million in 2008–09, would be collected by DOI and deposited into a newly established Firefighting Safety Account within the Insurance Fund.

We have raised a number of concerns with the proposal, most notably that it essentially levies a surcharge on all residents of the state—including parties that do not directly benefit from the state’s wildland fire protection efforts. As an alternative to the Governor’s proposal, we have recommended that the Legislature consider enactment of a fire protection fee on property owners in State Responsibility Areas since they are the direct beneficiaries of these firefighting services. (For more discussion of our recommended alternative, please see our “Department of Forestry and Fire Protection” write–up in the “Resources” chapter.)

No Funds Provided to Carry Out Proposal. The Governor’s budget does not provide any staff resources to DOI for collection of the special assessment revenues. The department has indicated that it would likely require some additional staff to implement the proposal. The level of staff resources required would largely depend on the process for collecting the funds. Although the administration’s proposal calls for a quarterly collections process, at the time this analysis was prepared, the department was uncertain about other details of the collections process. Details such as whether payments by insurers would need to be reconciled with future premium collections could affect the level of staffing required. Without more program specifics, the department could not provide information on how much funding and positions would be required in 2008–09 to implement the proposal.

Should the Legislature adopt the Governor’s proposal, we recommend that it direct the department to report at budget hearings on the funding and positions required, as well as on any other potential issues related to implementation of the proposed special assessment.