Insurers Pleased as N.J. Adopts 20 Auto-Reform Regulations

A.M. Best

Marie Suszynski

January 9, 2004

TRENTON, N.J., Jan 08, 2004, (A. M. Best via COMTEX) -- The insurance industry is applauding a move by the New Jersey Department of Banking and Insurance to adopt several new regulations that relate to the automobile insurance reform enacted in mid-2003, but some companies have "guarded enthusiasm."

Regulators adopted 20 regulations that move forward provisions included in the auto-reform bill, which Gov. James E. McGreevey signed into law in June, said Donald Cleasby, assistant vice president and assistant general counsel for the Property Casualty Insurers Association of America.

The department is more than two-thirds of the way to full implementation of the legislation, said spokeswoman Mary Cozzolino.

The department had released its proposed regulations in July 2003 and provided a 60-day comment period. "They're moving quickly," Cleasby said. "It's important for the Legislature to enact the necessary reforms, but equally important for the department to move quickly. We're satisfied that the department has done just that."

The regulations include a new way to calculate excess profits in which insurers will have to refund members if they had a return on equity of more than 12%. The industry had been using another method of calculation that defined an excess profit as total actuarial gain for all private-passenger auto coverages combined as more than 2.5% of earned premiums, or 3.85% before tax, using the federal corporate tax rate of 35% (BestWire, July 22, 2003).

Regulators also expanded the expedited rating system--which already had applied to rate filings of 3%--to also apply to rate filings of 7%, Cleasby said. And it has placed New Jersey in line with several other states by allowing insurers to cancel a policy for anyone who committed fraud on an auto insurance application, renewal or claim.

In addition, regulators are requiring insurers to provide certain information in renewal notices, nonrenewal notices, underwriting rules for renewals and notices of late fees for renewals. "These were safeguards built into the legislation," Cleasby said. "It's a legitimate trade-off to get more underwriting flexibility."

Another regulation established by the department includes general requirements for eligibility, coverage and election standards in the "Dollar a Day" auto insurance program. The policies, at a cost of $365 a year, are cheaper than the state's bare-bones policies and are available to Medicaid recipients, but some in the industry have worried they could lead to fraud (BestWire, Oct. 7, 2003).

Although companies are excited about the regulations, they're hoping legislators don't make disruptive changes with other legislation, said Richard Stokes, government affairs representative for PCI.

"From what I hear, I think there's guarded enthusiasm," Cleasby said. "There's been 30 years of over-regulation in the state. There's a healthy skepticism that they're serious about reform."

But there are also signs that the market is warming to the reforms. United Services Automobile Association, which writes insurance for the armed forces, said in October it would lower its auto rates by 5%, effective Dec. 1, for almost 139,000 vehicles with comprehensive and collision coverage. Earlier, State Farm Indemnity Co. had voluntarily lowered its rates by a statewide average of 4.1% and announced that it would suspend its practice of dropping coverage for 4,000 New Jersey drivers a month (BestWire, Oct. 28, 2003).

In addition to the rate cuts, the state recently gained a new auto carrier, Los Angeles-based Mercury General Corp. It was the first auto insurer to enter New Jersey's market in seven years.

Still to come are regulations to implement withdrawal provisions in the legislation and to change the way rating territories are calculated. Part of the department's proposed regulations, released in July, included changing its system of rating territories, which are geographic areas that are used as one of the factors in setting rates.

The top five writers of all private passenger auto in New Jersey in 2002 by market share, based on direct premium written, according to A.M. Best Co. state/line data, were: State Farm Group, with 15.1%; Allstate Insurance Group, with 12.3%; NJM Insurance Group, with 12.1%; Liberty Mutual Insurance Cos., with 10.8%; and Prudential of America Group, with 7.2%.

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