The New York Times

Where Drivers Are Now Courted

The New York Times — Thursday, August 24, 2006


Joseph Alfano, who works for an office supply company in Clifton, N.J., got a pleasant surprise when he renewed his car insurance this summer. The premium on his 1997 Mercury Mountaineer dropped nearly 30 percent, to $1,273 a year.

"It went down almost $500," Mr. Alfano said. "That's significant money."

Mr. Alfano's good fortune is common these days in New Jersey. For the first time in decades, prices for coverage are falling in the state and insurance companies are fighting for drivers' business. Roadside billboards cry out with special deals; radio and television are peppered with car insurance advertisements.

It is a mammoth change in a state where auto insurance has been a long-running nightmare and it puts New Jersey in line with auto insurance practices in most of the country.

More tellingly, it provides a case study in what happens when competitive forces are unleashed and markets are allowed to operate more freely. And while some drivers are worse off, the vast majority of consumers have gained from the changes.

Throughout the country, New Jersey and Massachusetts stood out for their heavy regulation. Some of the biggest insurers shunned the states. But that started changing in New Jersey when state officials, worried that even more insurers would leave, finally decided to give the industry much more flexibility with prices and driver ratings.

The changes began to go into effect nearly three years ago, but the full impact is just now being felt. "Lots of rate changes and new rating plans are starting to hit the market," said John Tiene, a vice president at the New Jersey Skylands Insurance Company. "They might have been approved in '04 and '05. But they're just happening now."

Insurance regulators say more than 75 percent of New Jersey's drivers are now paying less for auto insurance and that further reductions are expected.

Auto insurance prices have been declining around the country, as fewer accidents have been reported and big inroads have been made against fraudulent auto insurance claims. But nowhere are prices falling as sharply as in New Jersey. And insurance experts say that the easing of regulation in New Jersey has been by far the most important factor.

Some of New Jersey's worst drivers are paying more than before and some drivers have experienced little, if any, change in their premium costs. But agents around the state say costs have fallen for most of their customers and many are paying as much as 30 percent to 40 percent less.

Even some drivers with poor records are saving money. Over all, state regulators say, drivers have saved more than $500 million since the regulatory controls were relaxed.

With nearly 20 new companies doing business in New Jersey – introducing much more variation in price and service levels among insurers – nearly a third of the state's three million drivers have switched carriers. Geico, the most successful of the new companies, said that it had signed up the drivers of more than 500,000 cars and trucks since it began operating in New Jersey two years ago.

Under the new rules, auto insurers are free to develop their own rating methods, as they are in most states. As a result, certain individuals will do better at one company while others could be worse off.

The savings have been enormous for some customers, particularly those who make the effort to compare prices and shop for the best deal.

Scott Stanford, at the Britton-Selg-Stanford Agency in Roselle Park, had a client in Cranford who had been paying $13,900 for insurance on four cars, driven by himself, his wife and two children. In early August, Mr. Stanford wrote the same coverage for $4,800 less.

In Brick, on the Jersey Shore, Jeanne Heisler at the Ronan Agency shifted Joseph C. Tauro, an orthopedic surgeon, into a policy that St. Paul Travelers had been selling nationally but previously had been barred from offering in New Jersey. His premiums on four cars fell to $3,821 from $6,629.

Elizabeth Morel, 26, and recently married, was more typical. Her premium dropped to $2,000 from $2,500 when she renewed at the Otterstedt Insurance Agency in Englewood Cliffs.

Elizabeth Young, 32, a manager at a condominium hotel in Atlantic City, heard the Geico advertisements promising to save her money and picked up the phone. She signed up for a Geico policy for $1,100, a drop of $300.

Since the mid-70's, auto insurance prices in New Jersey had been higher than anywhere else in the country. But even so, insurers contended that they could not turn a profit.

Trying to keep insurance affordable and available, officials layered on regulations. With competition limited, lower-cost insurers simply avoided the state.

As voters complained to lawmakers, regulators made it more difficult for insurers to raise rates. One consequence was that in good years insurers held off from requesting lower rates for fear that when their fortunes turned, they would not be permitted to reverse the process.

At the same time, because the rates were capped and insurers were required to provide coverage to all but the most horrendous drivers, the companies said they were often selling insurance at less than their estimated costs. The more coverage they sold, the insurers contended, the more money they lost. So they tried to keep good old customers, but avoided new ones. They often let their phones ring off the hook.

To keep rates tolerable in cities like Newark and Camden where auto accidents were more common and theft was rampant, state officials permitted insurers to compensate by increasing prices more in the suburbs. But to avoid selling to higher- risk drivers, insurers operated few agencies in the cities and set limits on how many policies agents could sell.

In Camden, Bienvenido Calaf Jr., a partner in the Alston-Calaf & Associates agency, said he routinely had customers waiting three months for coverage.

The situation approached the crisis point three years ago. State Farm and American International Group, which together insured about a million drivers, were threatening to leave New Jersey. State Farm was already refusing to renew 4,000 drivers a month.

The insurers had always seen great potential in New Jersey with its largely affluent population and one of the greatest concentrations of cars in the nation. They increased their pressure in a long campaign for change, and Gov. James E. McGreevey and the State Legislature stepped back and let market forces work. It was not radically different from the way auto insurance was sold in most of the country. But in New Jersey it was revolutionary.

The insurers have been pouring millions into advertising. Television stations in New York and Philadelphia blanket the state. In the New York market, which extends as far south as Trenton, spending by auto insurers more than tripled to $17.4 million in 2005 compared with 2003, according to Jon Swallen, the director of research at TNS Media Intelligence in Manhattan. In Philadelphia, spending in the same period rose nearly fourfold to $17.2 million.

In place of the few rigid rate categories, insurers are now employing computer programs to come up with hundreds, if not thousands, of gradations in prices. The insurers say these programs, now in use in most states, enable them to better match prices to the risk presented by each driver.

A result, generally, is that better drivers pay less and worse drivers pay more. That has been widely accepted because there are far more drivers with unremarkable records than ones checkered with crashes and speeding tickets.

Consumer advocates, among the most vocal critics of state officials and auto insurers as the insurance situation worsened, have cautiously welcomed most of the changes.

"Over all, insurance is more available," said Phyllis Salowe-Kaye, the executive director of New Jersey Citizen Action. But she is concerned that the state now permits insurers to use credit ratings, occupation and education in evaluating risk and she fears that this might increase costs for low-income people.

For many New Jersey residents, this is the first time they have a real choice. Under the new rules, both Geico and Progressive Insurance, two of the most competitive auto insurers in the country, have begun selling coverage in New Jersey.

Altogether, 17 new auto insurers have entered New Jersey, bringing the total to 69. Regulators say they are in discussions with several more.

As the ranks of new companies have grown, Mr. Tiene, the Skylands executive, said the state's riskiest drivers – who account for a disproportionate amount of accidents and costs for insurers – have been spread over a wider base.

"At the same time," he said, "you're able to charge them a more appropriate rate."

So insurers' prospects of profits have risen, even as they have generally lowered prices.

Even in Newark and other cities, some higher-risk drivers are saving money. In May, Jesus E. Diaz, a 45-year-old computer technician with a bachelor's degree from Rutgers University, lost his car insurance, which was canceled after he was cited for several traffic violations.

Christine Veliz, who owns an insurance agency of that name in Newark, told him he would probably have to go into the state-run pool for high-risk drivers at about $3,400 a year, nearly three times what he had been paying. But she checked with Progressive Insurance and found she could get a policy for Mr. Diaz for $1,770 – even with the black marks on his record.

A year ago, Antonio Sousa, an auto mechanic in Newark, could find only one insurance company to sell him coverage, at $1,720 a year. At renewal Ms. Veliz suggested they try Progressive, which she began representing six months ago. Mr. Sousa's premiums fell by half.

"There have to be winners and losers," said Dena Mottola, the executive director of the New Jersey Public Interest Research Group.

But, so far, she said, "we couldn't find any data to back up that concern."

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