TRENTON — It may have taken decades, but the state's auto insurance market has proved its worth to a former carrier.



Nationwide Mutual Insurance Co. announced last month that it received approval from the state Department of Banking and Insurance to begin selling auto insurance policies to New Jersey drivers in August after a lapse of more than 30 years.

Nationwide had abandoned the state’s auto insurance market in 1981, joining an exodus of other automakers who complained the state had overregulated the market and made it too difficult to do business.

Today, the picture is very different.

“We’re very pleased to be a part of the New Jersey marketplace again,” said Amy Shore, senior vice president of field operations at Nationwide. “We’re excited about the opportunity, and it’s really been created by the improving regulatory environment there in New Jersey.”

The reformed, competitive market has continued to grow more robust for more than a decade with new entrants and returnees after years of overregulation lowered the number of auto insurers and left drivers with minimal options for coverage.

The improved environment is evidenced by Nationwide, based in Ohio, being the latest of several companies to embrace the marketplace since reform legislation was enacted in 2003.

New Jersey Manufacturers, which was an insurance industry linchpin during the crisis, also has experienced significant success in the market and is now selling its banking arm, which was established in 1999, to refocus its resources on insurance, according to Pat Breslin, director of legislative affairs at NJM.

Before the Automobile Insurance Competition and Choice Act was signed into law by then-Gov. James McGreevey in 2003, the state was forced into an auto insurance availability crisis after dozens of carriers stopped writing auto policies, blaming the way the laws were written.

Insurance companies were forced to return excess profits to policyholders if profits exceeded 6 percent and the Department of Banking and Insurance did not respond quickly to requests for rate changes, making it difficult for carriers to stay competitive.

Insurers also were required to take all drivers regardless of their driving records and were barred from giving customers coverage options with different price quotes.

Insurers that had left the state or were in the process of leaving stopped writing new policies and dropped their drivers.

“We had people needing auto insurance and not being able to get auto insurance at any price,” said Marshall McKnight, a spokesman for the Department of Banking and Insurance.

Many consumers were forced to buy insurance with last resort, or non-admitted carriers, which do not operate under the state’s normal insurance laws and were charging significantly more for coverage, McKnight said.

In 2002, policy costs were among the highest in the nation with the average policy costing $1,125, according to the National Association of Insurance Commissioners. Adjusted for inflation, that would have been $1,488 in today’s dollars, according to the Consumer Price Index.

As one of the remaining insurance companies during the crisis, NJM struggled to keep up with the rapidly increasing number of drivers clamoring for coverage, Breslin said.

“It was definitely a challenge to answer the phone promptly — we had wait times going on 20 minutes,” Breslin said. “That was our biggest challenge — hiring really good people, training them to work really well and getting them on the phone to handle the influx of business.”

Conditions changed after New Jersey regulators realized how tough they had made the system for auto insurers and loosened the reins. Among several changes to the regulatory system, the new law increased the amount of profits insurers could keep, called for quick response from the state for rate change requests, and allowed carriers to use accepted industry methods in determining risk rather than taking all drivers.

To the surprise of many in the industry, positive effects of the reform act became obvious quickly.

State Farm Insurance and American International Group, or AIG, were in the process of leaving the state but began writing new policies after the law was passed.

State Farm and USAA Group also announced rate reductions within months of the law’s passing. Geico, a subsidiary of Berkshire Hathaway, returned to the state’s renewed insurance market in 2004 after pulling out in 1976.

The market also attracted new entrants, with Mercury Insurance being the first new auto insurer to join in seven years in 2004, followed by Progressive Group in 2005.

Despite the added competition after the reforms, NJM, which does about 98 percent of its business in New Jersey, has succeeded in the marketplace, according to Breslin.

He said that between 2000 and 2003, the car count that NJM was insuring jumped from 600,000 to 740,000 cars. Currently, NJM insures about 800,000 cars, making it the second-largest insurer in the state behind Geico. That success has come despite NJM’s practice of writing policies only for its past customers, state employees and members of the NJ Business & Industry Association.

“Our pace of growth is a lot less, but then again, we’re not in a crisis and it’s now a good, healthy market,” Breslin said.

With an average state policy cost of $1,184 in 2011, the most recent statistic available by NAIC, New Jersey remains one of the costliest states for auto insurance, which McKnight attributes to several factors including higher personal injury protection coverage and more collisions, as New Jersey is one of the most densely populated states.

Even so, the $1,184 amount is still well below the inflation-adjusted $1,488 consumers were paying on average in 2002.

According to McKnight, there are currently 77 active auto insurance companies in the state, compared to 62 in 2002, and with Nationwide’s return next month, nine of the nation’s Top 10 auto insurers will be serving New Jersey drivers.

“It’s going to be one more spoke in the wheel that forces a downward pressure on rates and it’s going to make it an even more competitive market,” he said. “It’s good news for consumers.”

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