State of New Jersey
Office of the Governor
125 WEST STATE STREET
PO Box 001
Trenton NJ 08625-0001
JAMES E. MCGREEVEY
|FOR RELEASE: IMMEDIATE||CONTACT: Paul Aronsohn|
|DATE: June 25, 2002||PHONE: 609-777-2600|
ORDER DEFERS STATE FARM INDEMNITY WITHDRAWAL
DECISION FOR THREE YEARS
Auto Insurer Commits To Re-Consider Exit If Finances, Market Conditions Improve
New Plan Means Less Disruption To Drivers, Market
(TRENTON) – New Jersey’s largest auto insurer 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 today.
"We began working with State Farm Indemnity in November to prevent more than a half-million New Jerseyans from being forced to look for new insurance," McGreevey said. "Our next goal is to see State Farm Indemnity emerge in the coming years as a symbol of an increasingly competitive marketplace that operates in the best interests of New Jersey consumers."
State Farm Indemnity, insurer of approximately 730,000 New Jersey automobiles, had planned to leave the state next year, requiring policyholders to place each of those vehicles with other insurers during the course of six months.
Now, under a Market Stabilization Order signed by Bakke, only one-seventh of current policyholders are expected to be affected. And the time period in which those policyholders place their vehicles with other companies will be increased four-fold -- to two years. The large majority of State Farm Indemnity policyholders will be renewed as usual until at least the end of 2005, and possibly indefinitely.
"Today’s announcement is very good news for State Farm Indemnity policyholders and all New Jersey drivers, but our work is not done," Bakke said. "Both the Department and State Farm Indemnity continue to be concerned about State Farm’s financial condition and the auto-insurance market overall. While the Order makes major disruptions much less likely should State Farm Indemnity end up withdrawing in several years, consumers would be better served if conditions improved to the point where national companies returned to New Jersey and State Farm Indemnity was able to remain."
State Farm Indemnity President Brian Boyden committed to work with the Governor in January and has repeated his commitment to Bakke to seriously re-consider the company’s withdrawal in three years.
Bakke said the Department will work with insurance regulators in Illinois, where State Farm Indemnity is domiciled, to assist the insurer during the three-year stabilization period.
"This stabilization period will be vital not only for the future of State Farm Indemnity in New Jersey, but for the marketplace in general," she said. "This is about more than State Farm Indemnity because all New Jersey insurers have a stake in the outcome of our efforts. This is a time for 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 Order specifies several benchmarks for measuring the financial condition of State Farm Indemnity over the course of the next three years. At the end of that period, the company will re-examine its plans and consider remaining in New Jersey. Depending on the pace and extent of improvements, State Farm Indemnity could also decide at an earlier time to discard all plans to exit the market. If State Farm Indemnity ultimately decides, in late 2005, to proceed with withdrawal, the plan calls for that withdrawal to occur in a measured and orderly manner through 2007 or 2008, depending on the company’s financial condition.
"We have come a long way from where we stood a year ago, when the leaders of State government were either unwilling or incapable of comprehending the crisis that they themselves precipitated by pushing our largest auto insurer to leave the state," Bakke said. "The damage that was done cannot be repaired over night. But we are getting there. I commend State Farm Indemnity for its willingness to overlook past mistakes and work with us on solutions for New Jersey consumers."
"We applaud State Farm Indemnity and Commissioner Bakke for their hard work on this new plan, and for their cooperation with our efforts to improve New Jersey’s auto insurance marketplace," McGreevey said.
Full details of the State Farm Indemnity plan can be found on the Department’s web site, www.state.nj.us/dobi, along with consumer information on choosing coverage and shopping for auto insurance in New Jersey.
STATE FARM INDEMNITY
MARKET STABILIZATION AND DECISION ON WITHDRAWAL
PHASE I: FINANCIAL STABILIZATION
June 2002 - September 2004
· Financial benchmarks set by Department of Banking and Insurance in
Market Stabilization Order.
· Random non-renewal by State Farm Indemnity of 96,000 vehicles (approximately 13 percent of current State Farm Indemnity policyholders), excluding those vehicles belonging to long-time and multi-line customers.
· Standard renewal procedures for all other policyholders.
· Monthly reports to the Department of Banking and Insurance.
· Ongoing financial monitoring by New Jersey and Illinois.
PHASE II: MARKET STABILIZATION
September 2004 - Third Quarter 2005
· Continued renewal of existing policyholders.
· Continued monitoring by New Jersey and Illinois.
· Assessment of State Farm Indemnity finances vis-a-vis benchmarks.
· Assessment of New Jersey market conditions vis-a-vis benchmarks.
PHASE III: DECISION ON WITHDRAWAL
Fourth Quarter 2005
· If Financial Benchmarks met, no action on withdrawal until re-consideration
by State Farm management, Board of Directors.
· Department presentation to Board of Directors
· No later than December 31, 2005, State Farm Indemnity notifies Department of final decision: withdrawal or remain.
· If State Farm Indemnity decides to proceed with withdrawal, company will seek replacement carrier or carriers until December 31, 2006. Any necessary non-renewals would not begin before January 2007, and would continue at a constant rate until December 31, 2008.
· If Financial Benchmarks not met, non-renewals may begin at or around December 31, 2005 and continue at a constant rate until December 31, 2007.
· State Farm Indemnity may at any time elect to remain in New Jersey regardless of status of benchmark assessments.
STATE FARM INDEMNITY
MARKET STABILIZATION ORDER AND DECISION ON WITHDRAWAL
PROPOSED STATE FARM INDEMNITY WITHDRAWAL PLAN, JUNE 2001
ADOPTED MARKET STABILIZATION ORDER, JUNE 2002
|Company leaves New Jersey in 2003.||Company reviews decision to leave in 2005. If company does
decide to continue with withdrawal, exit occurs in 2007 or 2008.
|Drivers of more than 700,000 cars need to get new insurance over a six-month period.||Drivers of 96,000 cars need to find new insurance over a two-year
period, in addition to normal cancellations and non-renewals.
|All drivers need to secure new insurance coverage by end of 2003.||85 percent of drivers continue to be renewed as usual for
at least three years, except for normal cancellations and non-renewals.
Many are renewed for five or more years. Renewals continue normally if company
decides to stay in New Jersey.
|State Farm Indemnity requests waiver of any requirement to
give up its other businesses in New Jersey, such as homeowners insurance.
||Commissioner can decide issue when State Farm makes its final decision to stay or leave.|
State Farm Indemnity requests waiver of any requirement to set aside money as a "special deposit" to cover future costs of withdrawal.
|Commissioner can decide issue when State Farm makes its final decision to stay or leave.|
FACTS AND FIGURES
Cars Insured in New Jersey aprox. 4,800,000
Cars Insured by State Farm Indemnity aprox. 730,000
Number of State Farm Indemnity Policyholders (based on statewide average of 1.75 cars per policy) aprox. 420,000
Number of Cars to Need New Insurance in Next Two Years, Due to Order aprox. 96,000
Number of Policyholders Represented by 96,000 Cars aprox. 55,000