Is California now a deep blue state in which moderate conservatives no longer have a chance of victory in statewide elections? Or do such candidates still have hopes if they pass on the two-party system and run as independents apart from the partisan fray?

The former theory has been the topic of recent stories in the national media. But it’s the latter view driving the candidacy of tech entrepreneur Steve Poizner, who was elected California insurance commissioner in 2006 as a Republican and is seeking a second term this year while running as an independent. (Incumbent Dave Jones is termed-out and is running for attorney general.)

Poizner, a resident of Los Gatos in Silicon Valley, is a lock to advance past the June 5 primary to a November general election race against state Sen. Ricardo Lara, D-Bell Gardens. The other two candidates in the race have little name recognition and are lacking in institutional support.

But a Poizner win would seem to be a long-shot in the general election, based on 2014’s results. That year, several Republican candidates ran for statewide office with plausible claims to Arnold Schwarzenegger-style moderate conservatism. Since they were not going up against incumbents, two of these candidates – Fresno Mayor Ashley Swearengin, who ran for controller, and Pepperdine University administrator and civic activist Pete Peterson, who ran for secretary of state – were thought to have decent chances. Both lost by at least 500,000 votes.

Yet Poizner has factors in his favor that those 2014 GOP candidates didn’t.

The first is Lara’s struggle to define the campaign on his terms. Since Poizner got generally good marks as insurance commissioner for balancing the interests of consumers and insurers, Lara has focused on Poizner’s strong anti-undocumented immigrant positions in 2010, when he sought the Republican gubernatorial nomination but lost to former Hewlett-Packard CEO Meg Whitman. Poizner now disavows those positions. In endorsing Poizner, the editorial boards of the Sacramento Bee, the San Jose Mercury-News and the San Francisco Chronicle focused instead on Poizner’s readiness to deal with such difficult insurance issues as autonomous vehicles and increasing wildfire risks.

Meanwhile, the “issues page” of Lara’s own campaign website lists nine topics, including transportation and criminal justice – but not insurance. It appears designed for a gubernatorial candidate. Poizner’s website focuses primarily on his dealings with insurers in his previous term and his endorsements.

Lara’s history as co-sponsor of Senate Bill 562 – which would commit the state government to adopting a single-payer health care system – is also proving a double-edged sword. His high-profile support of the proposal has won raves from the California Nurses Association and progressive Democrats.

But SB562, which passed the Senate last summer before stalling in the Assembly, has faced a backlash from across the ideological spectrum for being vague and incomplete. The measure’s language doesn’t specify how its estimated $400 billion annual tab would be covered; how it could overcome a California Constitution provision blocking sharp increases in state spending; and how it would be able to divert federal health dollars for unprecedented use on a single state’s unique program.

Poizner campaign literature suggests questions about the cost of SB562 will be a focus of his fall campaign ads.

Should high-risk homes get insurance protection?

Lara’s similarly populist position on wildfire costs may also play better with progressives than with voters in general. He has proposed legislation to make it more difficult for insurers to consider recent fires when setting rates and deciding on whether to offer coverage in high-risk wilderness areas.

This has won praise from officials and homeowners in rural counties. But the measure has also faced criticism from insurers, who say if Lara’s proposal is enacted, millions of homeowners in low-risk areas would have to subsidize the rates of those in wilderness zones.

Still, Lara has a conventional but potent ace in the hole: his ability to run a fall campaign ad blitz reminding Californians of Poizner’s history as a Republican in a state with a dwindling number of Republicans. The latest state registration data show only one-quarter of voters identify with the GOP – a record low.

A Probolsky Research poll from last month put Poizner ahead of Lara. But most of those surveyed were undecided or didn’t want to take any position.

Poizner, a 61-year-old tech entrepreneur, was California’s insurance commissioner from 2007 to 2011, and besides Arnold Schwarzenegger, is the last Republican to successfully win statewide office.

In a comment to SFGate, Poizner argued that it makes more sense to have the position be held by an independent, saying that “there’s no room for partisan politics. The insurance commissioner needs to be fiercely independent.”

Additionally, Republican registration in the state has continued to decline – and the party only faces increased hurdles in the Trump era, with the state firmly situating itself at the center of the so-called “Resistance.”

Under 30 percent of the electorate in California is Republican. 

When Poizner lost his 2010 primary for governor to Silicon Valley CEO Meg Whitman, he ran as a hardline opponent of illegal immigration, a position unlikely to help him in his campaign. However, he’s since said that his views on the issue have “evolved.”

But despite his history of advocating for a Republican agenda in the deeply liberal state, the tech mogul has the ability to self-fund, giving him the opportunity to present a more formidable challenge to Democrats even without a party infrastructure backing him.

For example, Republican Peter Kuo has just under $4,000 cash in his campaign account, according to recent financial disclosures.

If he’s successful, Poizner will be the first Californian to win statewide as a “no party preference” candidate. But he may be situated in the middle of an emerging trend, as an increasingly sizable segment of the voting population – nearly 5 million California voters – cite “no party preference” on their registration.

Meanwhile, among Democrats, State Senator Ricardo Lara, D-Bell Gardens, and San Gabriel Valley pulmonologist Dr. Asif Mahmood are also running for the seat.

Current commissioner Dave Jones is termed out and running for attorney general.

And while the job of insurance commissioner is to oversee regulation of the state’s insurance markets and act as a consumer protection advocate, political beliefs on issues outside of the position’s core roles will likely factor into voters’ decisions.

For instance, the California Supreme Court issued a Jan. 23 ruling in a case that challenged the insurance commissioner’s authority to issue rules governing how insurance companies calculate replacement-cost estimates for homeowners’ policies. The trial and appeals courts ruled the commissioner exerted power not granted to him by the Legislature, but the high court overruled those decisions.

The decision has broad implications for the California Department of Insurance, which has been granted vast new regulatory powers. And while the 1959 statute at issue relates solely to the insurance industry, the court’s opinion could embolden other California regulatory agencies to take wider latitude as they implement business-related regulations.

The regulation in question was promulgated in 2010 under former Insurance Commissioner Steve Poizner, a Republican, and defended by the current commissioner, Dave Jones, a Democrat. Following wildfires in the 2000s, some homeowners complained their policies did not provide enough coverage to cover the total cost of rebuilding. They argued the insurers’ replacement-cost estimates, which they relied upon in their coverage purchases, often excluded major items like debris removal that should have been factored into the calculation.

The resulting “replacement cost regulation” requires insurance companies that choose to provide replacement-cost estimates to include a detailed list of requirements and standards that must be followed before communicating any such estimate. Those that provide estimates that diverge from the standard would be deemed to have provided a “misleading” statement – a serious matter under the state’s Unfair Insurance Practices Act.

In a brief submitted to the court by two trade associations, the insurance industry argued the commissioner “attempted to run roughshod” over the authority granted by that 1959 law by “expanding the legislatively prescribed list of unfair or deceptive acts spelled out in the UIPA.” The industry further argued the insurance code doesn’t allow the commissioner to mandate only one type of replacement estimate and that restrictions on communicating other types of cost estimates would abridge the First Amendment.

The lower courts ruled in favor of the industry on the “limits of power” issue, so the courts never examined the legal issues surrounding those other points. The state attorney general’s office took the side of the state Department of Insurance. In its 2015 ruling, the appeals court noted that, while the Legislature could “regulate the form and content of replacement cost estimates” if it wanted to, “the UIPA has not as of yet given the commissioner authority to regulate the content and format of replacement cost estimates.”

The state Supreme Court, however, found that neither “the UIPA nor any other statute categorically limits the commissioner’s authority to issue the regulation. On the contrary: section 790.10 explicitly vests in the commissioner authority to issue ‘reasonable rules and regulations’ to administer the UIPA. Which is what the commissioner sought to do here.”

The industry groups that were party to the case obviously disagreed with the court’s opinion with leaders of the Association of California Insurance Companies and the Personal Insurance Federation of California noting in a short statement their belief that “it does not accurately reflect the Legislature’s intent.”

While this case dealt with the relatively obscure issue of underinsurance — i.e., when consumers have too little insurance to meet their needs — the ruling’s implications are potentially quite broad. The term “reasonable rules and regulations” could be taken to mean that an insurance commissioner — and perhaps leaders of other regulatory agencies — is free to delve into lawmaking. Future regulators could use that broad rubric essentially to write vast new regulations and impose them on businesses. That’s certainly how Jones appears to be taking it, with his office writing in a Jan. 23 statement that “the Supreme Court ruled the insurance commissioner has broad discretion to adopt rules and regulations as necessary to promote the public welfare.”

Under our system of government, legislatures are the proper place to write laws, which are then implemented by the administrative agencies. Should insurers be compelled to provide more coverage than the policyholders purchased? What responsibility do policyholders have in assuring they purchase the right amounts of coverage? There are various remedies for these problems in the marketplace and via the legislative process. The long-term result of this case, however, is to allow an insurance commissioner to try to fix the problem with a regulatory edict.

The Supreme Court left open the opportunity for insurers to challenge the decision on other grounds and the insurers are mulling their options. But the ruling clearly gives insurance commissioners broader discretion than before in crafting and implementing regulations. 

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

This “solvency” issue gives state commissioners broad authority. In the dozen or so states where insurance commissioners are elected, these officials often have their eyes on higher office. For instance, insurance officials and some Sacramento observers argue California’s ambitious commissioner – Dave Jones, a former Democratic assemblyman who is mulling a race for attorney general – is imposing a politically motivated diktat on companies and dressing it up as a campaign for solvency.

The issue: Jones is calling for insurance companies to divest “voluntarily” from their investments in thermal-coal companies and in utility companies that make heavy use of coal. He has vowed to publicize – some say “shame” – insurance companies that don’t comply with the request. Given that 1988’s Proposition 103 grants the California commissioner vast powers to prescribe which factors companies use to adjust rates and to approve or deny proposed rate increases, insurance officials wonder about the voluntary nature of the policy.

The “Climate Risk Carbon Initiative” divestment request applies to direct investments in companies that gain more than 30 percent of their revenues from thermal coal. In practice, these are some of the most conservative investments around, including monopoly utilities whose returns are set by regulation. It also requires insurance companies that do business in the state to answer a variety of questions about such investments, even if they are headquartered outside California. The goal is to pressure companies to divest from these holdings.

“The commissioner decided to request voluntary divestment from thermal coal enterprises this year following consideration of recent studies that show coal investments represent significantly higher financial risk than other investments over time,” the California Department of Insurance explains. “Moreover, since 2011, coal prices, cash flows, and company valuations have fallen sharply, thus adversely affecting and bankrupting numerous coal companies.”

“Politics,” the department says, “has nothing to do with the decision to ask insurers to divest from thermal coal.”

That sounds reasonable, but insurers typically make conservative investment decisions. Jones and other advocates for divestment make it seem as if these companies are heavily invested in high-risk stocks. They suggest these companies will be stuck with enormous “stranded assets” as the nation moves away from coal-based energy and toward alternative-energy sources. But insurance companies hold few coal-related stocks and bonds as a percentage of their overall investments. Even if the “stranded asset” argument were correct, it would barely cause a blip in their portfolios.

In a letter to the insurance commissioner last year, leaders of major insurance-company trade associations reminded him: “For regulated utilities, the risk of loss due to stranded assets is remote. Utility companies operate on a cost-plus system. Precedent is in place that supports the recovery of all costs deemed to have been prudently incurred.”

By contrast, some of the investments the insurance commissioner prefers – in “green” energy, for instance – are risky. As my R Street Institute colleague R.J. Lehmann noted in an article last year, “Greentech Media publishes an annual list of solar company failures and has noted that ‘(k)eeping track of failing solar companies in 2011 and 2012 bordered on full-time work.’”

Why hasn’t the insurance commissioner called for divestment from these companies?

The answer seems obvious. California’s government has embraced climate change in a big way. Gov. Jerry Brown has addressed the United Nations and a conference at the Vatican, where he has depicted the issue in stark terms. In his view, the future of human existence is at stake. California has passed a first-in-the-nation cap-and-trade system to roll back industrial emissions to 1990 levels, along with other legislation designed to decrease public use of petroleum products dramatically. It’s a popular cause here, and isn’t lost on any up-and-coming politician.

Whatever one’s view of man-made climate change, it remains an iffy proposition to suggest it is threatening the long-term solvency of major insurance companies. These investments already reflect the risks involved in the energy sector. Every knowledgeable investor knows about the changing regulatory climate. Private investors are better able than government planners to evaluate such matters and make decisions accordingly.

Indeed, as I pointed out in my recent R Street study, one of the nation’s most widely respected investors, Warren Buffett, recently rejected calls by an activist group and investor in his Berkshire Hathaway Corp. to report on climate-change risks. For instance, many activists argue that insurance companies aren’t properly pricing these risks and aren’t being aggressive enough in tackling the potential long-term problems. Buffett believes in climate change but doesn’t see a risk in his company’s insurance holdings.

“As a citizen, you may understandably find climate change keeping you up nights,” Buffett said in his company report. “As a homeowner in a low-lying area, you may wish to consider moving. But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries.” Buffett suggested even an uptick in the frequency or severity of climate-related catastrophes wasn’t much of a problem for the insurance industry, given that rates are set annually. Moreover, as a major provider of reinsurance – that is, insurance for insurance companies – Berkshire might actually benefit from more demand driven by climate change, given that reinsurance prices have been falling for years.

These companies’ futures depend on their ability to evaluate risks and benefits. They all have teams of actuaries and risk-management professionals who have a vested interest in making the most sophisticated guesses about future events. Elected officials, by contrast, are more apt to be swayed by political winds. A previous Republican insurance commissioner and gubernatorial candidate, Steve Poizner, in 2010 tried to force insurers to divest from investments in multinational companies that did business in Iran. This type of thing is nothing new.

“Divestment comes at the expense of meaningful action,” wrote Frank A. Wolak, director of the Stanford University Program on Energy and Sustainable Development. “It will do nothing to reduce global greenhouse emissions. It will not prevent these companies from raising capital.” And indeed, the state government’s push for divestment in non-insurance areas – i.e., forcing the California Public Employees’ Retirement System to take a similar approach – has been met with a similar backlash.

One can never know the motives of insurance commissioners, past or present. But it’s a safe bet that private investors making their own decisions with their own money are almost certainly more trustworthy than politicians making investment decisions based on the latest political winds. By all means, commissioners should work to assure that insurers can fulfill whatever claims are made in the future – but they shouldn’t bootstrap that legitimate authority into a politically motivated crusade.

Steven Greenhut is the founding editor of CalWatchdog. He is Western region director of the R Street Institute and a Sacramento-based columnist. Write to him at sgreenhut@rstreet.org.