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California State Government November 5, 2002 Election
Smart Voter

Reform the Conservation and Liquidation Office

By Dale F. Ogden

Candidate for Insurance Commissioner; State of California

This information is provided by the candidate
The California State Auditor says that the Conservation and Liquidation Office has done an abysmal job in its single task of managing failed insurance companies. I have done this several times and know how to fix the problems.
I would completely revamp the Department of Insurance Conservation and Liquidation Office (the "CLO"). The CLO manages insurance companies during rehabilitation and liquidation. The CLO is supposed to marshal the assets and settle all of the liabilities of defunct insurers in a timely and cost-efficient manner. Instead, as happened with the Mission Insurance Group, Executive Life Insurance Company, and numerous other situations, the assets of the defunct insurer are wasted by paying multi-million dollar consulting fees to politically favored individuals and groups, who often are unqualified for the task at hand. Those consulting fees ultimately generate political contributions and other benefits for the regulators and their political allies. The California State Auditor recently (July 2001) issued a report very critical of the CLO (For example, in the summary, it states

"This report concludes that the CLO does not adequately safeguard and conserve insurance companies' assets by following prudent business practices and adhering to established controls. During our review, we identified significant weaknesses...we noted that the CLO does not effectively manage its contracts...the CLO uses a basis to allocate certain of its costs that is not equitable...the CLO has not recently updated its estate closing plans or prepared cash flow projections as a means for ensuring that investment decisions are optimized."

It goes on to say that

"Moreover, the department and the CLO have not addressed many of the issues raised in our previous two audit reports..."

No one in the last 3-4 administrations (even predating Garamendi in 1990) has done anything about the waste of millions (perhaps billions) of dollars of assets of defunct insurers. The California Insurance Guaranty Fund usually pays the claims (or most of the claims) of defunct insurers and becomes a creditor of the estates. However, the funding for CIGA ultimately comes from the citizens of California in the form of surcharges or increased rates on insurance policies. I have personally organized and managed rehabilitations and liquidations of several insurers in such a way that there was not one dollar of cost to the tax payers or insurance consumers of any state in which the companies conducted business.

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