N.J. Insurance Dept. to Investigate Insurers’ Refusal to Sell Basic Policies

December 24, 2002

New Jersey Insurance Commissioner Holly Bakke has ordered an investigation into the refusal of auto insurers to sell the state’s Basic Policy, a low-cost plan mandated by law since 1998.

The Commissioner’s action, contained in a series of Orders to Show Cause, are the result of an October survey of how well auto carriers are treating New Jersey drivers. In the test, only one-third of the attempts by investigators to buy a Basic Policy resulted in either a quote or an offer to mail an application.

“Resistance to selling the Basic Policy is widespread and clear-cut,” said Commissioner Bakke. “These Orders are the first step in ensuring that the Basic Policy is available for New Jersey drivers seeking that type of policy. For an uninsured driver, it may be the only way to get legal. We must make sure it’s available.”

Separately, Commissioner Bakke also launched a series of targeted inquiries and Market Conduct Examinations, in which companies that write auto insurance will have to show how they ensure that qualified New Jersey drivers can buy auto policies. The inquiries will combine multiple calls by investigators posing as consumers with on-site inspections.

“While some steps companies are taking may not technically be illegal, they clearly do not meet the spirit of New Jersey’s Take-All-Comers law,” Bakke said. “These targeted inquiries and Market Conduct Examinations will allow us to gather the evidence needed to levy serious fines and order other corrective action.”

Companies included in the Basic Policies Order are Rutgers Casualty, and the Michael J. Hochran Agency; Proformance Insurance Company, and Paul Arnold Associates and J.S. Braddock Agency; Parkway Insurance Company, and Wharton Lyon & Lyon; Hanover Insurance, and Heritage Insurance Agency; Countryway Insurance Company, and the D’Agostino Agency; Chubb Insurance Company of New Jersey, and Brown & Brown Metro, R K Hughes Inc., and Personal Lines Brokerage; Selective Way Insurance Company, and Conover Beyer Associates; and Security Indemnity Insurance Company, and Ernest F. Mason Agency.

This was the second time Department investigators found instances in which companies set up barriers to getting coverage. Companies were warned after a survey in July, but the October survey found lingering problems that called for more intense scrutiny.

Commissioner Bakke noted that some companies are doing a good job selling the Basic Policy. She commended Amica Insurance Company for selling the Basic Policy for 813 vehicles, all of them in the voluntary market. Most people who buy the Basic Policy are in the costlier residual market, reserved for high-risk drivers.

Other companies insuring large numbers of vehicles under the Basic Policy in the voluntary market include Allstate and the Prudential Group. Allstate, NJM Group and Clarendon each insured more than 1,000 vehicles through the Basic Policy in the residual market. As of June 30, drivers of 9,550 vehicles had selected this coverage, up from 8,000 vehicles on December 31, 2001. Statewide, 4.9 million vehicles are insured in New Jersey.

The recent survey, taken the week of October 7, follows a similar effort in July that focused on the responsiveness of auto insurance carriers but not on the availability of the Basic Policy. Results of that survey were shared privately with individual carriers, and Commissioner Bakke warned at that time that such tests would continue.

“The marketplace is tough; we recognize that,” Bakke said. “Reform is coming soon to provide more access to the market, more tools to fight fraud, and downward pressure on rates for good drivers.

“We will keep this investigation open until we have answers as to why auto insurance customers are being denied good service, not to mention their right to purchase coverage suited to their needs,” she said.

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