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The Coalition for Auto Insurance Competition today called upon the McGreevey Adminstration to quickly address the likelihood that auto insurance will become more difficult for New Jersey drivers to purchase due to State Farm's application to stop doing business in New Jersey.
"New Jersey urgently needs a regulatory system that promotes competition, encourages companies to sell auto insurance in our state, and creates a stable market that offers more choices for consumers," said John Friedman, chairman of the Coalition. "Lawmakers need to get beyond general statements and offer specific proposals that will prevent a further shortage in auto insurance availability."
The Coalition expressed concern that an update issued by the New Jersey Department of Insurance and Banking on its auto insurance working group did not focus on the dire conditions in the auto insurance marketplace that lead to a lack of choice and competition.
While the auto insurance working group's discussions reflected serious concern about the need for a more competitive market, today's update failed to highlight these deliberations.
"Four out of the six largest insurers in America already do not do business in New Jersey and when the state's largest auto insurer completes withdrawal, that number will increase to five out of six," said Friedman. "Now is the time to put forth sensible solutions that will empower New Jersey consumers with a greater choice of auto insurance companies and a marketplace where auto insurers actively compete against each other to sell auto insurance. We welcome the opportunity to work with the Administration to develop such a plan."
The Coalition for Auto Insurance Competition, a New Jersey-based group open to businesses, associations and consumers, cites excessive state regulation of auto insurance as the culprit behind limited competition by discouraging insurance companies from doing business in New Jersey.
The latest figures show New Jersey has 47 percent fewer companies selling auto insurance than Illinois and more than a third fewer than neighboring New York and Pennsylvania. More than twenty auto insurance companies have left New Jersey in the past ten years.
Seeking to prevent an unprecedented statewide auto insurance capacity crisis precipitated by the deterioration of the auto insurance industry's financial health in New Jersey, the Coalition was formed to educate the public and Trenton lawmakers about the need to reform New Jersey's auto insurance laws to create a stable and competitive market.
"With comparatively few auto insurers remaining in New Jersey, the loss of the state's largest will create significant pressure on companies' capital reserves, straining their capacity to take on more policyholders," said Friedman.
Capacity describes the volume of business an insurer can accept based on the size of its capital base surplus. Insurers must hold surpluses equal to at least one-third the premiums it collects from policyholders. If surpluses fall below the one-third standard, it signals that the company may be financially unstable. Companies with high financial ratings maintain their surplus at much higher levels.
"Having to operate under the state's restrictive and difficult regulatory regime where insurers are told what products to sell, to whom they must sell to and how much to charge, companies will lack an incentive to remain and invest in New Jersey, " continued Friedman.
The group is calling for reforms that will attract more auto insurers to New Jersey, spurring competition and increasing consumer choice. These reforms include permitting companies to use industry-accepted standard underwriting methods already used in nearly every state, lifting the exit barriers for ailing companies and adjusting the low ceiling on company profits to permit a reasonable rate of return.
"It's only natural to expect that consumers will shop around for the best deal if they have more choices. Competition and choice benefit consumers and when companies compete, consumers win," said Friedman.
The Coalition welcomes the participation of businesses, associations and consumers who seek to work together to bring about meaningful and responsible auto insurance reform. Members include the Independent Insurance Agents of New Jersey, Citizens for a Sound Economy, National Association of Mutual Insurance Companies, New Jersey Association of Realtors, Professional Insurance Agents of New Jersey, New Jersey Food Council, New Jersey Retail Merchants Association, NJ SEED (Society for Environmental, Economic Development), Somerset County Chamber of Commerce and the Commerce and Industry Association of New Jersey.
CONTACT: The Coalition for Auto Insurance Competition
Ernie Landante, 973/242-5855