New Jersey Department
|For Immediate Release: November 9, 2004||
For Further Information:: Mary Cozzolino - (609) 292-5064
State Farm Indemnity Returns to Marketplace,
Gives Drivers 4th Rate Reduction in Two Years
PARSIPPANY – Marking another milestone for New Jersey drivers, Banking and Insurance Commissioner Holly C. Bakke today joined officials from State Farm Indemnity to announce the company’s re-entry into the New Jersey auto insurance marketplace. Improvements in the insurance marketplace prompted the company’s decision, which was made one year ahead of schedule.
“State Farm Indemnity’s re-entry into New Jersey will not only preserve its long-standing relationship with its New Jersey policyholders, agents and employees, but will further contribute to a developing competitive marketplace for consumers,” Governor James E. McGreevey said. “In just a few years, we have seen substantial improvements in auto insurance. Our reforms, which have returned more than $230 million to policyholders, developed a competitive, consumer-driven marketplace that invites and encourages companies to do business, rather than pushes them out.”
Vince Trosino, President, Vice Chair and Chief Operating Officer of State Farm Mutual added, “A competitive marketplace provides an environment in which companies can conduct business in a manner that benefits consumers, earn a reasonable return and provide competitive prices and services. Competition is alive and growing in the New Jersey auto insurance market.”
State Farm Indemnity marked its re-entry into the New Jersey marketplace by signaling that it is ready to compete. The company announced its fourth voluntary rate reduction. Effective January 1, 2005, State Farm Indemnity will reduce its rates by 3.8 percent, which will result in $26.3 million for more than 330,000 policyholders.
“When I became commissioner, the withdrawal of State Farm Indemnity exemplified the reality of New Jersey’s dysfunctional auto insurance marketplace, a marketplace that was hurting drivers,” Commissioner Bakke said. “We worked with State Farm and we learned from that experience, and today, State Farm’s re-entry and rate reduction marks the dawn of a new age of competition for New Jersey drivers.”
At its peak, State Farm Indemnity insured nearly 20 percent of the New Jersey auto insurance market, but after sustaining considerable financial losses, the company sought to leave New Jersey. In an effort to avoid a rapid departure that would have flooded an already fragile auto insurance market and left more than 800,000 drivers without coverage, Commissioner Bakke took action to stabilize State Farm Indemnity to protect New Jersey policyholders.
Due to Indemnity’s precarious financial condition, the Illinois Department of Insurance – Indemnity’s home state – ordered the company on June 25, 2002 to shrink in size to reflect capital levels, specifying the nonrenewal of 4,000 vehicles per month, or up to 96,000 vehicles over two years. The same day, the New Jersey Department of Banking and Insurance issued a Market Stabilization Order that addressed safeguards for consumers impacted by the nonrenewal and comprehensively addressed Indemnity’s condition.
“The long, uphill battle that started two years ago when State Farm Indemnity was preparing to withdraw from the state is over,” Governor McGreevey said. “Today, State Farm Indemnity not only announces its continued investment in New Jersey, but also validates its commitment to its policyholders. State Farm Indemnity’s decision is a clear sign for all New Jersey drivers that our auto insurance reforms are working for them by providing more choices and continued downward pressure on rates.”
Commissioner Bakke issued a Consent Order providing for State Farm Indemnity to re-enter the market in an orderly manner. The Order assures the responsible re-entry of State Farm Indemnity as the company begins to write new business. The company has not written new business in three years.
“We have been working closely with State Farm Indemnity over the past two years by creating a market where the company can successfully manage its business to the benefit of policyholders,” Commissioner Bakke said.
The State Farm Indemnity Company, which insures more than 540,000 New Jersey vehicles, is a stand-alone stock company owned entirely by State Farm Mutual Automobile Insurance Company. The sole function of the State Farm Indemnity Company is to provide auto insurance to the residents of New Jersey. Separate State Farm affiliates provide other lines of insurance in New Jersey, such as life and homeowners.
The rate reduction scheduled for January 1, 2005 follows a series of post-reform rate reductions by State Farm Indemnity. In October 2003, the company issued a $38 million rate reduction for more than 500,000 vehicles. In May, State Farm Indemnity reduced rates by 5.1 percent, resulting in an average savings of $70 for more than 500,000 vehicles. In August, the company issued a $25 million rate reduction affecting more than 500,000 drivers.
This latest rate reduction brings the total returned to New Jersey drivers since the Governor’s reforms were enacted to more than $230 million. Additional highlights spurred by the auto reforms include: