State Farm Decision to Stay in New Jersey Auto Market Latest Sign of Improved Insurance Environment

November 10, 2004

A flurry of special dividends and a series of rate reduction announcements from auto insurers, coupled with increased competition and new regulations adopted by the New Jersey insurance department, are helping to reshape the state’s long-plagued auto insurance market, according to the industry.

The latest sign of success occurred yesterday when State Farm Indemnity announced it would drop plans to withdraw from the state’s auto insurance market. State Farm announced in June 2001 that it wanted to leave the market because it was losing money and saw little hope of improvement in a state notorious for its excessive regulation.

Other signs of an improving marketplace occurred this summer when Liberty Mutual and Allstate Insurance companies both decided to return nearly $15 million each through special dividends and rate reductions to more than 400,000 total policyholders.

“A marketplace in which competition is the primary regulator of insurance rates best serves consumers, regulators and insurers. State Farm’s decision to continue doing business in New Jersey is a testament to the legislature’s effort to pass landmark auto insurance regulatory reform legislation in June 2003. Because of this legislation, insurers are now able to operate more efficiently and write more policies. It’s a ‘win-win’ situation for companies and consumers,” claimed Richard Stokes, regional manager and counsel for the Property Casualty Insurers Association of America (PCI).

New Jersey’s Department of Banking and Insurance also has proposed 19 regulations to implement the landmark auto insurance regulatory reform. To date, 18 of those regulations have been adopted.

“The trend in rewarding good drivers and lowering rates is a strong
indication that the New Jersey auto market is radically changing and
stabilizing,” said Stokes. “Carriers willing to share their improved
financial conditions with their policyholders is a sure sign that auto
insurance reforms are working in the state. Releasing reserves is also a signal that loss experience has improved and that the market is becoming more competitive. Drivers will continue to benefit as existing carriers continue to compete and new carriers are attracted to New Jersey.

The PCI representative praised state officials for their work in fostering the imrpved insurance environment. “The department’s responsiveness also is largely responsible for the gains the state’s automobile market is experiencing,” Stokes said. “These improvements are a radical departure from the 30 years of mismanagement that New Jersey’s auto market suffered. Consumers are experiencing more options and a downward pressure on rates.”

According to PCI, some of the benefits from auto market reforms include:

– a survey that most consumers are now able to get auto insurance coverage within a week instead of months;
– more than one million policyholders have received more than $230 million back in voluntary rate reductions and special dividends;
– New Jersey Manufacturers Insurance Company reinvesting in New Jersey by opening a new 57,000 square-foot facility in Hammonton and voluntarily reducing rates for more than 362,000 policyholders;
– a program targeting uninsured motorists has resulted in 40,000 previously uninsured drivers becoming insured;
– AIG Companies, scheduled to leave New Jersey in December 2003, has postponed a final decision for a least two more years.
– since the reforms, two national carriers — GEICO and Mercury General have also entered the New Jersey marketplace.

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