Availability No Longer N.J. Auto Issue

2003 reforms seen as opening state, but court ruling could thespoil party

Imagine a New Jersey gubernatorial election in which autoinsurance plays no significant role.

While the battling millionaires, Democrat Jon Corzine andRepublican Doug Forrester, have plenty to spar over, the fact thatauto insurance is not one of them could be seen as one sign ofimprovement, said Richard Stokes, regional manager for the PropertyCasualty Insurers Association of America.

"The more time we go with positive news, the better off we are,"Mr. Stokes said.

New Jersey state officials would agree with that assessment. Ina report issued earlier this year, Acting Commissioner Donald Bryansaid the entry of Esurance Insurance Company (a unit of WhiteMountains), Progressive and GEICO into the market means more choicefor consumers.

In addition, AIG remains in New Jersey, restoring its commitmentto policyholders, and First Trenton Indemnity Company (now calledTravelers of New Jersey) has 60 more agents.

Even Seattle-based SAFECO, which currently writes no personalauto business in New Jersey, is considering the possibility ofre-entering the state, according to Michael LaRocco, president ofproduct, underwriting and claims. In a recent interview with NU Mr.LaRocco said, "If we do re-enter, I don't see it until sometimelater in 2006." Although New Jersey presents a "uniquely excitingopportunity, because it is so big," he said, "we want to be smartabout it. And we want to make sure we don't lose our focus on thestates we're already in."

Two years ago, the state enacted a series of market-orientedreforms that among other things removed the "take all comers"provisions and premium caps on urban drivers, and included newmeasures for fighting fraud.

"The total benefit to policyholders since the reforms hasreached $300 million (premium reductions and dividend payment) for56 percent of the marketplace," the report by the insurancedepartment stated.

Earlier this month, Acting Gov. Richard Codey continued thedrumbeat of good news when he said that High Point Insurance wouldreduce its rates more than $4.5 million for 64,000 policyholders inthe state.

"Three years ago, our drivers were on the road to nowhere whenit came to shopping around for auto insurance policies. Now, ourdrivers not only have plenty of choices, they also have incentiveto stay with their current company," he said.

In addition, the governor said that Liberty Mutual has returnedmore than $23 million to drivers in the form of rate reductions anddividends.

Mr. Codey said the appointment of more than 1,500 N.J. autoinsurance agents and an agency opening in Paterson for the firsttime in 20 years are further signs of the improving market.

John Latimer, president of the Professional Insurance Agents ofNew Jersey, said availability is no longer an issue. The fact thatthe assigned risk applications are now down 30 percent year overyear also is a good indicator of the health of the market.

"The concern was when they changed the law and did away with'take all comers' the assigned risk was going to grow," he said."The counterargument seems to be accurate--that when you bring inmore companies, they will take more people and the [number of]assigned risks will go down," he said.

From an industry perspective, there has been bad news in theform of a New Jersey Supreme Court decision last June that removedrestrictions on pain-and-suffering claims stemming from autoaccidents. The court found that the state auto insurance reformbill that restricted bodily injury suits does not limit such claimsfor pain and suffering to those injuries that have a so-called"serious life impact."

Mr. Latimer said the Supreme Court case, Christine DiProspero v.Barbara Penn, could be a "problem"

"You can see it restricting the market a little bit. We expectrates to rise for bodily injury, and that companies that werethinking about coming in will now think twice unless the bills arepassed to reimplement the 'serious life impact' test," he said.

A series of reforms passed in 1998 offered state drivers theopportunity of lower premiums if they limited their right to suefor non-economic damages to instances in which they suffer "abodily injury which results in death, dismemberment, significantdisfigurement or scarring, displaced fractures, loss of a fetus, ora permanent injury other than a scarring or disfigurement,"according to a briefing paper issued by PIANJ.

But what was not clear in the 1998 law was whether thelegislature also intended to maintain the "serious life impact"test, which had been an additional burden to meet since a 1992court decision. The Supreme Court ruled the lawmakers had everyopportunity to include such a test, and their failure to do someant it couldn't be applied.

New Jersey still maintains a prior approval rate filing system.But a flex-rating leeway of the low-single digits does givecarriers a new ability to navigate market ins and outs moreefficiently, Mr. Latimer said.

While credit scoring has been in the state in some form for thepast two years, it is only in the last six months that allcompanies have been allowed to implement it.

"Credit scoring is catching on. Consumers are starting tounderstand it after the initial surprise that credit could affecttheir auto rates," Mr. Latimer said.

(Additional reporting by Susanne Sclafane.)

Flag: Garden State Blooms

Head: New Jersey Private Passenger Auto Rankings

Berkshire's Hathaway's GEICO, Los Angeles-based Mercury General,and the Esurance subsidiary of White Mountains Group, appearedamong New Jersey's top 25 private passenger auto insurers for thefirst time in 2004. While reforms have made the state moreattractive to insurers, the loss ratio remained about average, at57.1 in 2004, compared to 58.6 for the nation overall.