News Release

Commissioner Holly C. Bakke

For Further Information:   Mary Caffrey - (609)292-5064
Ellen Lovejoy- (609)292-5064

COMMISSIONER: NJRe CAN PROCESS BACKLOG,
BUT DEPARTMENT MUST ENFORCE CONSUMER PROTECTIONS

Bakke to seek information on wait times,
“churning” related to nonrenewal regulations

TRENTON, N.J. – New Jersey Re-Insurance Company can take steps to process the backlog the company faces in issuing policies, Banking and Insurance Commissioner Holly C. Bakke said yesterday.

However, current regulations require the Department to respond to any consumer appeals that may result if NJRe fails to provide quotes or coverage in a timely manner. The company has proposed several steps to reduce the backlog of unprocessed applications, which currently stands at 8,100. Just in 2002, NJRe grew at an alarming rate of 37 percent.

“Until the Legislature passes an auto insurance reform package, we must enforce the rules as they exist. But giving NJRe applicants the false sense that their applications will be handled quickly does not help, and, in fact, can cause harm if those drivers end up uninsured.”

The Department plans several steps in response to the NJRe request:

• An order being issued in the coming days will ask other auto insurers to report on how long it takes to turn around requests and process applications. Different procedures used by direct writers, such as NJRe, and insurers that sell policies through agents can affect processing times and the application of Department regulations.
• A review of ways to minimize “churning” in the market due to increased use of the “2 percent rule” on nonrenewals. The rule allows companies to nonrenew up to 2 percent of policies in a given territory based on criteria that include driving record and payment history. The Department recognizes that this provision is one of the main ways carriers can control growth and protect financial stability. In the current market, however, it has exacerbated the number of drivers shopping for insurance under stressed conditions.
• The Department will monitor the NJRe progress on a biweekly basis to advise if their program should continue. Specifically, regulators will examine the number of calls received, the number of applications requested, and how quickly the application backlog is being reduced.

On February 18, 2003, NJRe informed Commissioner Bakke that it needed a 60-day break from providing price quotes in all circumstances, in order to catch up on the unprecedented volume of requests due to the current availability crisis in the state’s auto insurance market.

Consumer response to NJRe’s announcement has been overwhelming, according to Bakke, who has received dozens of emails from policyholders concerned about NJRe’s backlog and the fear that they will become uninsured.

NJRe’s proposed steps include temporarily halting requests for quotes from drivers who seek coverage. Under the proposal, drivers who seek immediate coverage could obtain it by sending in a $250 deposit per vehicle and a completed application, with a bill for the balance of premium arriving later.

“No reasonable person could look at NJRe’s situation and not appreciate its impact on NJRe policyholders and all drivers seeking coverage,” Bakke said. “Unfortunately, the current regulatory structure which created the situation does not provide the flexibility to fix it.”

Commissioner Bakke agreed that current market conditions have made it difficult for auto insurers trying to follow both the letter and the spirit of the law to properly process the flood of requests for coverage. “The regulations on the books do not work to protect policyholders, given the market conditions we face today,” Bakke said.

Bakke, however, said the Department has no choice but to handle any appeals that come in during NJRe’s processing of its backlog. “Regulations clearly state that we need to respond to consumer appeals if drivers believe they have been improperly denied coverage,” she said.

A letter to NJM Insurance Group from Commissioner Bakke and Insurance Division Director Donald Bryan notes that the company has increased its work force and office space, and reassigned staff from other insurance lines to handle increased volume. The automated system for sending out applications within 48 hours of a request has resulted in a 98 percent increase in the number of applications sent out (over the same month of 2000), a 127 percent increase in the number of applications returned (also over 2000), and 37 percent growth in the number of policies issued through NJRe in the year 2002.

In its letter of February 18, the company noted that it had reached the point at which a person who was nonrenewed by another company and given the required 60 days to shop for insurance stood no chance of getting a quote in time to be covered before the old policy expired.

“NJRe is concerned about protecting consumers so that they don’t end up uninsured. This is also of particular concern to the Department,” Bakke said. “We feared reaching this point, but it has come earlier than we expected,” she said.