N.J. Auto Reforms Continue Drive Forward

New Jersey Banking and Insurance Commissioner Holly Bakke announced this week that the competitive auto insurance marketplace that is emerging in New Jersey reportedly as a result of Governor McGreevey’s reforms is once again yielding positive results for consumers and putting downward pressure on rates for good drivers.

On Jan. 30, State Farm Indemnity filed for a second voluntary rate reduction for its policyholders – the first voluntary rate reduction by Indemnity went into effect in 2003. This latest change includes an overall 5.1 percent statewide average rate decrease. The reduction applies an average 4.2 percent accident-free discount to qualified policies and a .9 percent decrease for comprehensive coverage. These new reductions, which become effective on May 1, will result in an average savings of about $70 for 544,613 eligible vehicles, or about 96 percent of State Farm Indemnity’s covered vehicles.

State Farm Indemnity’s action comes on the heels of an earlier voluntary rate reduction in October that slashed rates for some 500,000 vehicles, a savings of about $70 per eligible vehicle.

“Today’s announcement is more good news for New Jersey drivers,” Bakke said. “State Farm Indemnity’s action is yet another signal that the Governor’s auto insurance reforms are producing premium savings for many good drivers.”

In a few short years, State Farm Indemnity has moved from being a casualty of a New Jersey’s failing auto insurance system, reportedly to a symbol of the Administration’s fresh approach to a troubled auto insurance marketplace. The Governor’s reforms, enacted in June 2003, combined aggressive consumer protections with marketplace changes in order to address auto insurance availability.

At its peak, State Farm Indemnity insured 20 percent of the New Jersey auto insurance market, but after sustaining considerable financial losses, the company sought to leave New Jersey. In an effort to avoid a rapid departure that would have flooded an already reportedly fragile auto insurance market and left 800,000 drivers without coverage, Bakke took action to stabilize State Farm Indemnity to protect New Jersey policyholders.

Due to Indemnity’s precarious financial condition, the Illinois Department of Insurance – Indemnity’s home state – ordered the company on June 25, 2002 to shrink in size to reflect capital levels, specifying the nonrenewal of 4,000 vehicles per month, or up to 96,000 vehicles over two years. The same day, the New Jersey Department of Banking and Insurance issued a Market Stabilization Order that addressed safeguards for consumers impacted by the nonrenewal and comprehensively addressed Indemnity’s condition.

Last October, just four months after Gov. McGreevey signed the new auto insurance bill into law, State Farm Indemnity voluntarily reduced its rates by 4.1 percent, resulting in approximately $70 in savings each for some 500,000 eligible vehicles. That same month, the plan to drop 4,000 vehicles per month was suspended, well before reaching its 96,000-vehicle target.

The Market Stabilization Order reportedly gave State Farm Indemnity, working with the Department of Banking and Insurance, the ability to manage its book of business and improve its financial condition to protect policyholders.

“State Farm Indemnity’s financial situation deteriorated drastically in the New Jersey marketplace that existed prior to Gov. McGreevey taking office,” Bakke commented. “Now that the Governor created real incentives for competition, the company is able to manage its business and consumers are benefiting.”

Today, State Farm Indemnity reported that its financial condition continues to improve. The filed annual financial report shows the company’s surplus, or net worth, increased to $662 million. “This improvement positions the company to stay and grow in New Jersey, if it ultimately decides to do so,” Bakke said. “The success of the Governor’s reforms and the Market Stabilization Order are going to give Indemnity something to think about next year.”

Since the auto insurance reform law was signed, policyholders have experienced the changing marketplace in beneficial ways:

* $86 million was returned to drivers through voluntary rate reductions by State Farm and USAA, and special dividends from NJM;

* More than 500 new auto insurance agents have been appointed by auto carriers since the reform legislation was adopted, making auto insurance more accessible;

* Mercury General Insurance Group, a large California-based insurance company, entered the New Jersey auto insurance market and is currently covering more than 10,000 vehicles;

* The AIG Companies, which were scheduled to leave New Jersey last month, postponed that action for at least another two years;

* The Governor’s “Last Chance” program initiated in 2002 resulted in 37,000 previously uninsured drivers contributing more than $54 million to New Jersey’s insurance system;

* The Dollar-a-Day program has enrolled more than 460 drivers since October;

* Recognizing the inimical harm fraud has on public safety, the reform legislation made it a crime to file false claims or provide false information on an insurance application;

* Stepped up the fight against fraud – 86 percent of all civil insurance fraud cases filed in the nation were in New Jersey.