AIA Urges N.J. Assembly to Stay Focused on Auto Reform

February 21, 2003

The American Insurance Association (AIA) urged the New Jersey General Assembly to remain focused on competition and stabilizing the auto insurance market at an Assembly Banking and Insurance hearing on auto insurance reform.

AIA Vice President and General Counsel David Snyder testified on behalf of AIA member company insurers that write all lines of insurance in New Jersey. Many of these companies are based in the state and employ thousands of New Jersey citizens, and as such have a long term commitment to the welfare of the state and its citizens.

Snyder explained that, “New Jersey lacks competition in personal auto insurance. Compared to neighboring states and those with similar demographics, such as Pennsylvania, Connecticut and Illinois, New Jersey has relatively few companies writing private passenger auto insurance. Consumers need choices in the marketplace and competition in the auto insurance market will ensure the lowest feasible rate levels for New Jersey motorists.”

New Jersey’s unique combination of intrusive regulation has led to the state’s lack of competition. New Jersey has “take all comers” provisions, the so-called “excess profits” rule, prior approval rate regulation and severe withdrawal restrictions. None of the other states cited by Snyder have all three and in fact most have only one—rate regulation. Illinois, the most competitive state in auto insurance, has none of these provisions.

“A market where insurers compete for business is a market where consumers win,” Snyder said.

In order to attract new players to the New Jersey market the following reforms are: repeal take-all-comers, modify excess profits rules, eliminate elements of the withdrawal restrictions, including the “lock-in-law”, implement expedited rate review with action based on actuarial standards, not politics, and phase-out of other underwriting controls such as the Urban Enterprise Zone (UEZ.)

“If done effectively, these reforms will send the right signal to the national and even international insurance markets,” Snyder explained. “Without them, more of the same lack of competition should be expected.”

The problem today is a lack of competition in the market. To address this, pro-competitive reforms are needed to encourage market entry and expansion. This will result in more choice for consumers and the lowest possible rates.

“The need today is to remove some of the layers of well-intentioned, but counter-productive regulatory intrusion” said Snyder.

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