NAII Says N.J. Auto Market Emerging from ’30 Years of Mismanagement’

December 11, 2003

The National Association of Independent Insurers has issued a bulletin, which indicates that New Jersey’s auto insurance market, which it described as “once the nation’s poster child for the dangers of over regulation,” is gradually showing signs of improvement.

The NAII cited the reform package enacted by Governor McGreevey last summer as the principal reason. “Although it’s still too early to tell all of the benefits New Jersey consumers will enjoy from the new law, the fact that insurers are returning to the market and that the market is stabilizing is very encouraging,” stated NAII assistant vice president and assistant general counsel Donald S. Cleasby. “After 30 years of mismanagement, the turnaround so far has been remarkable. And with new insurers coming into the state, the growing consumer choices in automobile insurance which the new law promised won’t be long in coming.”

Cleasby pointed to several positive signs that the New Jersey auto market is on the road to recovery:
— Los Angeles-based Mercury Insurance entered the New Jersey market, the first new auto insurer to do so in seven years.
— State Farm Indemnity, the state’s largest auto insurer, initiated a voluntary rate reduction of 4.1 percent statewide, which should save 500,000 drivers an average of $70 a year.
— State Farm also suspended its practice of dropping coverage for 4,000 drivers every month.
— Allstate Insurance, the state’s second-largest auto carrier, plans to add 15 to 20 new agents, serving an estimated 20,000 more drivers.
— American International Group (AIG) subsidiaries, the state’s seventh-largest auto insurer, agreed to cancel or postpone by up to four years its plan to end coverage for more than 200,000 cars and withdraw from the market.
— USAA, the state’s eighth-largest auto insurer, agreed to reduce rates by 5 percent.

“These positive indications are a radical departure from New Jersey’s troubled past,” said the NAII. “The state has seen more than 20 insurers pull out of the market over the past 10 years, citing excessive regulation, including long lag times in rate setting, an ‘excess profit’ charge, the inability to adjust prices, and a territorial rating system designed to subsidize urban drivers that has been called ‘socialistic.’ Currently, only about 50 insurers write auto business in the state, compared with many states with 200 or more insurers competing for business.

“State legislators and the media are coming down on the side of reform. A Senate committee this month voted down a trial attorney bill that would have limited the use of the verbal threshold option, recognizing that it ran counter to reform efforts. And since Gov. James McGreevey signed the reform bill into law this June, New Jersey newspaper articles and editorial columns have been highly supportive of the initiative and optimistic about the market’s eventual turnaround.”

Cleasby noted that “Plenty of naysayers criticized the reform bill because it didn’t include mandatory rate rollbacks and other provisions that would have increased regulation. The really remarkable thing about this reform is that insurers are coming into the market and cutting back rates without the mandatory rate rollbacks we have seen in legislation of the past.”

He concluded that while affordability continues to be an issue for New Jersey drivers, who still pay the country’s highest premiums, the availability of more insurance options will increase competition and may eventually drive down pricing. The reform law also contains insurance fraud-fighting provisions, which will help in reducing insurer costs.

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