Like most businesses, the insurance world can’t avoid stepping on any toes, especially when it comes to “campaign contributions,” a sticky subject in and of itself. The concept is simple enough. One entity donates money to support their chosen candidate for elections, but when the elected candidate favors the company, it can seem an awful lot like bribery.
On top of this, what happens when a business deal violates state law? It’s also not unheard of for trades to go under the radar if they can save a little money on the side.
The state of California has an uncomfortable situation on their hands. A large insurance company was denied a sale because it violates one of their laws. Under California law, a company based in the state can’t be sold or “transferred” without the approval of the California Insurance Commissioner.
This is written specifically to protect the policyholders, and it says so in the state’s law. The Commissioner is there to oversee any trades going through so that the people of California can trust in the insurance policies they take out. State boundaries matter when it comes to insurance.
The problem is, the company in question is only a subsidiary to a larger business model, and the sale is quite costly, running up to $920 million.
Allegedly, the sale was made anyway, and the deal was closed without the proper procedures done.
Who Is Involved?
The business in question is California Insurance Co.(CIC), a subsidiary of Applied Underwriters. If the acquisition goes through, the CIC will become part of a bigger insurance group, serving America in the North American Casualty Co.
The second major player is the California Department of Insurance, with its commissioner, Ricardo Lara. Because of the department’s lack of approval, the sale is technically in limbo.
The main point of contention here is that California laws should be followed. However, the CIC is technically based in New Mexico as a branch of a larger company. So, should the laws be followed, or should the state respect that their company is technically placed elsewhere?
Regardless of these questions, the CIC’s certificate of authority will be removed if the deal continues, meaning they won’t be able to do business in California any longer.
To make matters even murkier, Lara pledged in his campaigns not to accept contributions from the insurance industry. This, unfortunately, did not happen. He’s known to have engaged in talks with Applied, as they offered him support to look favorably on their future business dealings.
Whether the deal will go through, and the contributions will take effect, we have yet to see. However this plays out, there will be changes to either the insurance industry or a state’s laws regarding it.