New Company Set to Travel New Jersey's Road to Auto Insurance Competition
Governor Announces First Major Company to Enter Market in Decades
TRENTON, N.J., Aug. 7 -- Today's announcement by Governor James E. McGreevey that Mercury General will begin selling automobile insurance in the Garden State confirms that the strong and positive message sent by the recent passage of the New Jersey Automobile Insurance Competition and Choice Act is attracting new companies and much needed capital to New Jersey's long-troubled automobile insurance market says the Insurance Council of New Jersey (ICNJ).
"Today's announcement confirms that New Jersey is indeed removing the barriers to competition that have plagued our state for decades," said John K. Tiene, President of the Insurance Council of New Jersey. "The recent reform is a well-balanced foundation on which we are building a new vibrant, competitive automobile insurance market."
Mercury General will be the first major insurer to enter New Jersey's turbulent automobile insurance market in more than thirty years. In the last decade, more than 25 insurance companies have withdrawn from the state, seven companies departed just last year. Mercury has indicated that it is willing to commit up to $100 million in new capital to New Jersey's ailing automobile insurance market.
"Much more work needs to be done to untangle the decades of complicated and burdensome regulations that have denied consumers choice and stifled competition," continued Tiene. "This dramatic change in direction though would not have been possible without the Governor's leadership."
The legislation, known as Senate Bill 63/Assembly Bill 2625, was developed through the leadership of Governor McGreevey and received overwhelming bi- partisan approval in the Legislature this past spring. The reform law is intended to curb the state's growing auto insurance availability crisis and spur market competition.
ICNJ also praised the efforts of Assemblymen Lou Greenwald (D-Camden) and Kip Bateman (R-Somerset) for their leadership in securing bi-partisan support and passage of the legislation in the General Assembly. In the Senate, Senators Ron Rice (D-Essex), Ray Lesniak (D-Union), Gerald Cardinale (R-Bergen) and Joe Kyrillos (R-Monmouth) were instrumental in that house's bi-partisan vote on the legislation.
The comprehensive legislation has generated a flurry of activity. Since Governor McGreevey signed the legislation on June 9, 2003, more than a dozen regulatory proposals have been published by state regulators. These regulatory procedures provide the structure for implementing the legislation, slated to take effect on January 1, 2004. Previous reforms have taken many years to fully implement, thus delaying the benefits of those reforms.
"As the many elements of the reform law are implemented, we expect consumers to see an increasingly competitive market," continued Tiene. "New Jersey has long needed to modernize its regulatory approach to auto insurance, gain the confidence of market participants, and look to attract desperately needed capital from insurers. We appear to be well on the road to stability and competition," concluded Tiene.
NEW JERSEY'S ROAD TO COMPETITION
February 2002 Coalition for Auto Insurance Competition (CAIC)
makes initial call for reform.
June 28, 2002 A2625, the New Jersey Automobile Insurance
Competition and Choice Act, is introduced by
Assemblymen Lou Greenwald (D-Camden) and Kip
Bateman (R-Somerset). It is referred to the
Assembly Banking & Insurance Committee.
January 14, 2003 Governor McGreevey calls for swift action on auto
insurance market reforms.
February/March 2003 Assembly Banking & Insurance Committee holds
hearings to gather information on auto insurance
issue.
March 17, 2003 Senate Commerce Committee releases Committee
Substitute for S63 that incorporates bi-partisan
reform measures.
March 20, 2003 The Senate approves S63 in a 28 to 5 vote.
May 5, 2003 S63 received in the Assembly and referred to the
Assembly Banking & Insurance Committee for
consideration.
S63 released by Assembly Banking & Insurance
Committee and a Committee Substitute for A2625 is
approved to conform it and make it identical to
S63.
May 15, 2003 The Assembly approves S63/A2625 in a bi-partisan
vote of 77 to 0.
June 9, 2003 Governor James E. McGreevey signs the legislation
into law.
August 7, 2003 Governor James E. McGreevey announces Mercury
General's entrance in New Jersey automobile
insurance market.
FACTS RELATING TO THIS STORY:
-- Today, five of the six largest auto insurance companies in the nation
do not write auto insurance in New Jersey.
-- More than 26 auto insurers have left New Jersey in the last ten years,
seven in just the past year.
-- State Farm Indemnity, the state's largest auto insurer, is approved to
withdraw and began non-renewing 4,000 insured vehicles a month in
September 2002 for the next 24 months or 96,000 insured vehicles.
This action is in addition to the voluntary run-off of the auto
insurance business of The Robert Plan Companies, that non-renewed
20,000 insured vehicles between September and December 2002.
-- When the withdrawal of State Farm and others are completed, more than
1.7 million insured cars will have had to seek coverage because of
insurance company withdrawals since 1994.
-- According to the New Jersey Department of Banking & Insurance, 19 auto
insurance companies writing 28 percent of all auto insurance policies
are in such detrimental financial conditions that they require
monitoring by state regulators.
-- ICNJ estimates that over 740,000 vehicles will need new automobile
insurance coverage this year and consumers will experience increasing
difficulty finding new coverage. State Farm Indemnity will non-renew
approximately 50,000 vehicles this year and the state's number of
registered private passenger vehicles is expected to have net growth
of about 120,000. In addition, ICNJ forecasts that approximately
570,000 vehicles will not renew their current coverage and seek new
coverage in 2003.
The Insurance Council of New Jersey (ICNJ) is a nonprofit, insurance research, information and advocacy organization sponsored by 30 New Jersey licensed property/casualty insurance companies. Collectively, ICNJ member companies underwrite 96 percent of automobile insurance policies, 72 percent of homeowners' insurance policies, 55 percent of the commercial insurance and more than 56 percent of workers compensation policies in New Jersey.
BACKGROUND INFORMATION:
August 7, 2003
INSURANCE SCORE, CREDIT INFORMATION
& AUTOMOBILE INSURANCE
Recent media reports have focused on a request by a prospective automobile insurer, Mercury General, to use insurance scoring as a part of its underwriting guidelines should the company enter New Jersey's traditionally turbulent automobile insurance market. Mercury would be the state's first new automobile insurer in seven years and, with an announced commitment to place up to $100 million of new capital into the state, the largest new automobile insurance carrier in decades to enter the state.
Unfortunately, the reports sensationalized the use of credit information, through a process known as insurance scoring, and characterized its possible use as unfair. The articles also misrepresented how credit information is used.
The logic of using credit information is simple. While it's not a loan, insurance is like a line of credit. Policyholders pay premiums so that, in the event of a loss, they will have money to repair or replace their homes, cars, etc. All research shows that people who handle money responsibly also tend to handle their driving responsibly(1).
Insurance companies do not see a person's credit report, only a numeric score. An insurance score is a confidential numeric rating based on factors relevant to calculating insurance risk, such as payment history. Specific information contained in a person's credit report remains private and is not taken into account when calculating an insurance score. Insurance scoring doesn't consider personal factors such as race, nationality, religion, gender, marital status, age, income, or net worth when determining a score.
Insurance companies have increasingly included certain credit-related information among the factors used to both underwrite and price various types of insurance policies. While the use of credit in underwriting is used by more than 90 percent of auto insurance companies in the United States, this is a new issue in the Garden State.
Consumer credit information, in combination with other objective factors like driving history, is commonly used by insurance companies to accurately estimate the risk presented by a given customer and to determine a fair price for his/her insurance. The use of insurance scoring is not a new concept. Some insurers have used the application of credit in underwriting since the 1980s.
Insurance scoring gives insurance companies another tool to ensure that customers get a fair rate based on each policyholder's unique circumstances. Insurance scoring has proven to be a very accurate way to predict the likelihood of a person experiencing a loss and filing an insurance claim.
The use of insurance scoring benefits most consumers, since most people use credit wisely and have good credit histories. Two out of every three consumers benefit when credit is a factor in insurance underwriting(2). Insurance scoring can help policyholders qualify for lower premiums because insurance companies often charge lower premiums to customers who are considered more responsible. Insurance scores can also allow companies to give policyholders lower preferred rates when other factors such as driving record would, in the absence of the additional insight offered by insurance scoring, result in higher rates.
Furthermore, given New Jersey's current market conditions, the limited use of insurance scoring is a reasonable measure. ICNJ member companies feel strongly that safeguards must be in place to ensure that those with limited or no credit histories are not penalized. It is also important for consumers to be able to appeal underwriting decisions influenced by insurance scores.
And finally, insurers must comply with the Federal Fair Credit Reporting Act, which provides for strict guidelines for the use of credit information in insurance rating. All companies are required to follow these guidelines. In addition to establishing guidelines, the Federal Fair Credit Reporting Act also provides numerous consumer protections including:
-- The right to obtain a free copy of your credit report if you are
adversely affected based on information in your credit report; and
-- The right to contest any inaccuracies in your credit report and have
inaccurate information removed.
If you have any questions or would like to obtain copies of the footnoted report, please contact the Insurance Council of New Jersey at (609) 882-4400.
(1) A Statistical Analysis of the Relationship Between Credit History and
Insurance Losses, Dr. Bruce Kellison and Dr. Patrick Brockett, Bureau
of Business Research, McCombs School of Business, The University of
Texas at Austin, March 2003.
(2) Insurance Information Institute, New York, New York.