Mercury General Looking To Enter N.J.

By Mark E. Ruquet

NU Online News Service, July 18, 11:51 a.m.EDT?A Los Angeles-based insurer has applied to sell autoinsurance in New Jersey just six weeks after the state enactedlegislation to revise regulations that insurance carriers said werestrangling the marketplace.

Mary K. Caffrey, assistant commissioner for the N.J. Departmentof Banking & Insurance said Mercury General Corp. has submitteda business plan to provide automobile insurance to customersreceiving nonrenewal notices from State Farm Insurance Company,which is phasing out business in the state.

"Their plan would help solve a major issue for New Jerseyautomobile insurance customers," she said.

Under the plan, Mercury General would give customers who receivea nonrenewal notice from State Farm a quote for insurance. She saidthat while customers would have the option to shop around forinsurance, at least they would have a company in hand to purchaseinsurance from. Customers, she said, would have the option ofopting out of the plan to send their information to Mercury if theywished.

The state is looking to process Mercury's application for entryinto the state "as soon as possible, " Ms. Caffrey said, addingthat it is expected to be completed "in weeks, not months."

If approved as presented, she said, Mercury would be the firstauto insurer in the state to use credit scoring in itsunderwriting.

She said the state has no prohibition against using creditscoring, a practice which has been under fire from consumer groupsas a frequently defective process, which has a negative impact onminorities, low income groups and persons without prior creditrecords.

Ms. Caffrey said that the department would make sure that theuse of credit scoring would be standardized and fair.

"We are pleased that a major carrier with a good A.M. Bestrating is looking to come into New Jersey," said Ms. Caffrey. "Thatis very, very exciting for us."

Over a two-year period, which began in 2002, State Farm isallowed to drop 4,000 renewal policies a month for a total of96,000 policies. Ms. Caffrey said the state hopes the company willdecide against a complete withdrawal.

The company, in announcing its withdrawal, cited heavy losses inthe state and complained of the regulatory environment. Under aplan worked out with the department, the company is reducing itsshare of the state's auto insurance market from a high point ofabout 20 percent of the market to less than 13 percent today.

Ms. Caffrey said State Farm is now the number three insurer ofautomobiles in the state, with New Jersey Manufacturers andAllstate now one and two. No company has more than 15 percent ofthe market, she added. There are five million insured automobilesin the state.

She said the level of risk concentration was too high for StateFarm. It is hoped after it has stopped its nonrenewal process, thecompany will decide to stay in the state, she said

New Jersey, which for years has drawn insurer complaints that itover-regulates auto insurance, on June 9 put into law an omnibusmeasure, the Automobile Insurance Competition and Choice Act,designed to revise its system.

Its provisions include action to remove the take-all-comers lawthat requires companies to accept any driver, no matter their risk,a requirement that insurers viewed as onerous. Also included is arevision of the excess profits law to reflect business fluctuationsand provision for faster approval of rate increases.

"Things are different and changing in New Jersey," said Ms.Caffrey. "There is a lot of buzz and interest from companies."

Mercury General Corporation reported net income of $42.1 millionfor the first quarter of 2003 on premium written of $538.8 million.The company reported a combined ratio for the quarter of 94.4percent.

The company writes insurance in California, Florida, Virginia,New York, Illinois, Georgia, Texas and Oklahoma. It offers personalautomobile and commercial lines insurance, but not in all states.Its distribution is through independent agents.

The company's insurance operations are rated "A-plus" by A.M.Best.

A request for comment from Mercury General was not returned.