In another action reportedly demonstrating the success of the New Jersey Governor’s auto insurance reform, State Farm Indemnity has suspended its practice of dropping coverage for 4,000 New Jersey drivers each month.
“In just a few months, we’ve seen historic changes for New Jersey drivers,” said Governor James McGreevey. “There are real results and tangible signs that progress is being achieved.”
The Governor said New Jersey motorists are benefiting from a series of recent accomplishments, including Mercury Insurance’s decision to move to New Jersey (the first new auto insurance company to do so in seven years); Allstate’s plans to add 15 to 20 new agents, and State Farm’s voluntary rate reduction, which will save 500,000 drivers an average of $70.
The Governor reported State Farm’s decision to suspend its practice of dropping coverage for 4,000 New Jersey drivers each month will prevent thousands of drivers from being forced to look for new coverage. He also noted that the company is taking this action a full year ahead of schedule.
Since September 2002, State Farm Indemnity has been non-renewing policies that cover about 4,000 cars per month. Regulators in Illinois and New Jersey reportedly required this action to bring financial stability to the company. The suspension of non-renewals, approved by Illinois regulators, helps drivers of 94,000 cars who were notified a year ago that they might be non-renewed under the orders.
“Today is a great day for New Jersey drivers,” McGreevey said. “Every State Farm Indemnity policy that stays in force brings stability to an improving auto insurance market, which benefits all consumers. When fewer drivers are forced to hunt for new coverage, those who must shop will find it in less time.”
State Farm Indemnity’s condition was reportedly emblematic of the auto insurance crisis that Governor McGreevey faced upon taking office in January 2002. At its peak, State Farm Indemnity insured 20 percent of the New Jersey market but had asked to leave due to its poor financial condition. A rapid departure would have reportedly flooded a fragile auto insurance market, one that had suffered the departure of 20 companies over the previous decade.
The Governor and Banking and Insurance Commissioner Holly Bakke set to work immediately to stabilize State Farm Indemnity and limit the impact on consumers. “Auto insurance has bedeviled New Jersey lawmakers for 30 years, but for the first time we faced a crisis in which drivers could not find coverage at any price,” Bakke said.
On June 25, 2002, State Farm Indemnity was placed under a Corrective Order by regulators in Illinois, its home state. This order required the company to shrink in size to reflect capital levels. The same day, New Jersey issued a Market Stabilization Order that specified the non-renewal schedule of approximately 4,000 cars per month. New Jersey’s order also granted the company the right to leave after December 2005 and outlined financial benchmarks the Department would use to gauge progress.
If State Farm Indemnity meets the benchmarks in 2005, New Jersey reportedly has the right to make a case why the company should stay in New Jersey. “State Farm remains on track to meet these targets,” Bakke said.
The Market Stabilization Order also called for New Jersey to take steps to change its regulatory environment. Governor McGreevey advanced that cause by signing landmark auto insurance reform legislation on June 9, 2003.
The new law, still being implemented, will overhaul a 30-year-old regulatory structure in an effort to attract new companies and capital. It also reportedly features the nation’s toughest provisions to fight insurance fraud, offers new consumer protection and education measures, and takes steps to reduce the ranks of the uninsured.
“Today’s action by State Farm Indemnity does not alter its right to leave after 2005, but it does show, beyond a doubt, that the Market Stabilization Order was the right step for consumers,” Bakke said. “Instead of pointing fingers and laying blame, this Administration stepped in and made the tough choices that have allowed the company to successfully manage its business. Consumers have benefited from these actions.”
Mercury General, which entered the New Jersey market in August, has been offering binding quotes to all State Farm Indemnity non-renewals. Mercury may now have the ability to offer replacement coverage to drivers covered by several small carriers that had petitioned to leave the state, Bakke said.
“The Department is working with Mercury to explore how they can continue to provide New Jersey drivers with options,” she said.
Commissioner Bakke noted that State Farm Indemnity policyholders who have received non-renewal notices must get replacement coverage, either through Mercury General, which will still offer quotes, or from a company of their choosing. “A State Farm Indemnity non-renewal notice that has arrived in the last month is still valid. Drivers should take care to not be caught without coverage,” Bakke said.
Like all other auto carriers, State Farm Indemnity can still non-renew drivers for other reasons, such as failure to pay premium or accumulation of too many insurance points.
Was this article valuable?
Here are more articles you may enjoy.