State Farm Indemnity, New Jersey’s largest auto insurer with around 735,000 policyholders, has reached agreement with the governor and the NJ Department of Banking and Insurance (DOBI) to delay its withdrawal from the state’s auto market for three years while efforts to find a solution continue.
The company “will work with regulators in New Jersey and Illinois over the next three years to improve its financial condition while continuing to serve the large majority of its current policyholders, Governor James E. McGreevey and Banking and Insurance Commissioner Holly C. Bakke announced.
Following the agreement Bakke issued a “Market Stabilization Order” that will affect around 105,000 State Farm policyholders. They’ll be given additional time, up to two years to find alternative coverage.”The large majority of State Farm Indemnity policyholders will be renewed as usual until at least the end of 2005, and possibly indefinitely,” said the announcement.
Bakke indicated that the DOBI will work with insurance regulators in Illinois, where State Farm Indemnity is domiciled, to assist the insurer during the three-year stabilization period. She called the arrangement “vital not only for the future of State Farm Indemnity in New Jersey, but for the marketplace in general,” and recognize that “all New Jersey insurers have a stake in the outcome of our efforts.” These will focus on “bringing back stability for both State Farm Indemnity policyholders and policyholders statewide. This will be a time for bringing competition back to the market for the ultimate benefit of consumers.”
The NJ Coalition for Auto Insurance Competition (See IJ Website June 13, 4 and May 15) responded to the announcement with renewed calls to reform the state’s auto insurance regulations.
“The state’s announcement on State Farm further underscores the need for a dramatic change in the laws that govern auto insurance in New Jersey is what we’ve been saying now for some time,” stated John Friedman, chairman of the Coalition. “Until reforms are made that promote greater consumer choice and industry competition, insurers will continue to lack the incentive to grow and invest capital in New Jersey.”
In agreeing to forestall its planned withdrawal, State Farm may have boosted the chances for the reforms the Coalition is advocating. At least they’ll now be on the table for discussion.
It blames NJ’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,” as the main reasons companies are seeking to leave the market, and are reluctant to enter it.
“We need a regulatory system that promotes competition, encourages companies to sell auto insurance in New Jersey, and creates a stable market that offers more choices for consumers,Friedman continued.”
The Coalition wants reforms that would permit companies to use industry-accepted standard underwriting methods, that are “already used in nearly every state” and to adjust the low ceiling on company profits to permit a reasonable rate of return.