New Jersey Department
|For Immediate Release: June 24, 2004||
For Further Information:: Mary Cozzolino or Vincent Funelas 609) 292-5064
AUTO INSURANCE MARKET RECOVERING:
DRIVERS REAP BENEFITS
Commissioner Bakke Forecasts Consumer Returns
Will Exceed $200 Million
TRENTON - Banking and Insurance Commissioner Holly C. Bakke predicted today that positive financial results for a majority of companies in the auto insurance marketplace will continue to produce returns for New Jersey drivers in the form of more special dividends and rate reductions.
More than one million consumers are already experiencing the results of the competitive marketplace, as companies voluntarily reduce rates and issue dividends. The Department predicts more drivers will benefit as existing carriers continue to compete and new carriers are attracted to New Jersey. The Commissioner cited recent trends in lowering rates to reward good drivers and new consumer protections as evidence that the improved market is making life better for New Jersey policyholders.
"New Jersey has already seen more than $133 million returned to policyholders in the form of rate reductions and special dividends within the first year of the Governor's reforms," Commissioner Bakke said. "Companies are considering further reductions and it is expected that over the next few months these additional rate reductions and dividends will exceed $200 million."
New Jersey Manufacturers (NJM), for example, reported that it expects to return $38 million to policyholders in 2004, as a direct result of the auto reforms. Previously, due to New Jersey's historically unpredictable marketplace, NJM followed a practice that incorporated large reserves to guard against unanticipated losses in the state's mechanism for paying individual medical claims over $75,000. Under the new reforms, NJM expects to release part of these reserves directly to policyholders.
Other companies have responded to improved loss experience by beginning to release their reserves. A carrier's willingness to share its improved financial condition with its policyholders, through dividends and rate reductions, is a signal that the market is readying itself for competition.
"As the auto insurance reforms take hold and the market continues to heal, companies will be competing for drivers all to the benefit of consumers," Commissioner Bakke said.
The auto insurance industry finances were in the black by more than $600 million in 2003. This strong financial standing, in large part due to reserve releases, is evidence that the industry is healing. While 15 percent of auto insurers continue to struggle, the overall economic outlook for the other 85 percent is improving.
"This is good news for consumers who had to contend with an auto market that did not provide them with choices of companies or cost," Commissioner Bakke said. "The auto insurance marketplace is transitioning from a dysfunctional one to one that is positioned for competition. This will attract investments from various carriers and continue downward pressure on rates for consumers."
In contrast, when Governor James E. McGreevey took office, the auto insurance marketplace in New Jersey was suffering from a 30-year history of over-regulation. With more than 40 carriers leaving New Jersey during the last 10 years, and major carriers threatening to leave, consumers were left with limited options. New Jersey's auto insurance marketplace was in chaos and consumers were being hurt.
Endorsed by legislators from both parties, Governor McGreevey developed bold reforms to revamp the automobile insurance regulatory structure into a marketplace that worked for drivers, bolstered consumer protections, and enticed carriers to reinvest in New Jersey. The plan: to build a competitive marketplace where companies will compete for drivers, give policyholders the information and tools they needed to protect their interests, and consumers would benefit from lower premiums.
"The plan is working," Commissioner Bakke said. "Aggressive consumer protections combined with the phase out of unnecessary market-controlling regulation give policyholders the advantage they need to direct the new market. The bottom line is that the reforms are working. Companies are competing and consumers are winning."
Just one year after Governor McGreevey's
auto reforms were passed, a new carrier joined the market, national carriers
who fled from New Jersey are considering returning, and instead of leaving the
state, companies are expanding their investment in New Jersey by writing more
drivers. The reforms also recognized that New Jersey drivers found it hard to
shop for auto insurance. New consumer protections were established to help drivers
find automobile insurance policies that best suit their needs and understand
their rights. These achievements contribute to the recent trend of low premiums
and continued downward pressure on rates.