|Title:||United States top 10 New Jersey private auto insurance writers ranked by market share percentages for 2003 and 2010|
Start of full article - but without data
New Jersey Auto: What Exit?
Reforms in 2003 steered the New Jersey
auto market on a more positive track toward keeping
insurers from leaving the state. And since, the Garden
State has continued to strive for more company-friendly
regulations. The top XX private passenger
writers based on market share (direct premiums
written) has changed greatly since 2003.
Allstate Group XX.XX% State Farm Group XX.XX% NJM Insurance Group XX.XX% Palisades Group XX.XX% Liberty Mutual Cos. XX.XX% Farmers Insurance X.XX% Travelers Group X.XX% USAA Group X.XX% CNA Insurance Cos. X.XX% Tower Group Cos. X.XX%
Berkshire Hathaway (Geico) XX.XX% Allstate Group XX.XX% NJM Insurance Group XX.XX% Palisades Group XX.XX% State Farm Group X.XX% Liberty Mutual Cos. X.XX% Progressive Insurance X.XX% Travelers Group X.XX% Farmers Insurance X.XX% USAA Group X.XX%
Source: BestLink State/Line Report
Note: Table made from bar graph.
New Jersey and Massachusetts both suffered from automobile insurance markets in turmoil and both enacted reforms to their systems to stem the bleeding of carriers from their markets. But following the reforms, their roads diverged.
In Massachusetts, the goal has been to hold the line since the state's XX-year-old system of centralized ratemaking came to an end in April 2008 with the introduction of "managed competition." Companies could now set their own rates, instead of the state, but there were "some who never had faith in the managed competition system," according to Paul Tetrault, northeast state affairs manager for the National Association of Mutual Insurance Cos.
So despite issues like a ban on the use of credit-based insurance scoring and frequent rate challenges from the state attorney general, "The best thing is to have stability, to not have any changes, to not have retrenching and go back to what was before," Tetrault said. "The dynamic exists for potential retrenchment. It's an active issue."
Numbering among the opponents of reform: one of the largest auto insurers in the commonwealth.
"We were absolutely on the other side," said John Donohue, chief executive officer of Arbella Mutual Insurance Co. Arbella ranked as the third-largest writer of private passenger auto in Massachusetts the year the reforms went into effect, according to BestLink, A.M. Best Co.'s information database. In 2010, the company had dropped to No. X.
"We thought that the old system was not necessarily broken," he explained. The only difference between the old rate-setting system and the new managed competition system is under the old system, profit margins were smaller. A mutual like Arbella can run on a smaller margin of profit because they "don't have to answer to Wall Street," he noted.
"This is really about how much profit an insurance company can make," Donohue said, noting more companies have entered the market since the reforms, but there was nothing stopping them from entering it under the old system. "They chose not to because they did not like the regulatory system."
While Arbella has made peace with the new system-with Donohue saying "the changes are at about the right level"--Arbella is opposed to any lifting of the ban on credit scoring. He said allowing such a factor "creates too many pricing swings" and is not best for the consumer.
He notes while rates dropped with the entry of new insurers, "since 'XX, more companies have been taking rate increases than rate decreases." Some have been taking them twice a year, Donohue said. "That would not have been allowed under the old system."
Tetrault said Massachusetts was a very constrained market, driving the amount of companies actively writing auto insurance to around XX. But by 2010, there were XX writers in Massachusetts, according to BestLink. "Politics and business don't mix that well," he noted, saying rate-setting prior to reform was heavily informed with political motives. "It's better to remove the politics and let the market function."
Donohue said "time will tell." He fears prices may go up faster in the future, harming the consumers who need to know how much money to put aside to pay premiums. Donohue also noted that when new companies came to the market, they had very low pricing to gain market share quickly. Afterward, they filed for significant rate increases.
Old vs. New
These new entrants in a new system were one of the biggest challenges faced by insurers already in the market, said Rich Attanasio, vice president of property/casualty ratings at A.M. Best. These old companies were used to the prior system, knew how it worked and now had to adapt to a different environment. "In general, most companies adapted well," Attanasio said. "That's not to say there weren't some bumps in the road."
Arbella's combined ratio was profitable before the reforms, but then rose above XXX in 2009 and 2010. "What we believe was driving that increase was two things: the weather patterns were worse and competition forced us to cut prices," Donohue said. Despite the new competitive environment, Arbella has mostly maintained its market share and retention rates have gone up.
"We feel pretty good about how we handled this major change to our largest market," Donohue said. The company has introduced some new products and pricing since the reforms. "There's definitely been an increase in advertising...We think that's helped us in the marketplace."
Tertault called the boom in advertising in both New Jersey and Massachusetts a "harbinger of success."
Donohue said "more choice is always better," but also noted the market was starting to see some stability in fewer new entrants and less new products. "There hasn't been any wide swings like in New Jersey," he said, alluding to the disruption of market share in that state. In 2005, the year New Jersey's reforms went into place, Allstate and State Farm were at the top of the pack. In 2010, Berkshire Hathaway wrote the most auto premium in New Jersey, Allstate had fallen to second place and State Farm to fifth.
"New Jersey was an example for Massachusetts," Tetrault said. New Jersey has more participants, "but their system was not broken for as long. New Jersey got back on its feet quicker, but the change in Massachusetts from a political perspective was so remarkable."
New Jersey's Changes
Unlike Massachusetts, New Jersey was not content to hold the line. Reformers in the state continued to push forward, challenging what they saw as obstacles to a good, functioning auto market.
In the years since the reforms, the industry has successfully shot down a territorial rating proposal and saw a medical fee schedule upheld by state courts. Now the focus is taking on personal injury protection costs in the no-fault system.
"That's one of the pressure points for the auto line," said Rich Attanasio, vice president of property/casualty ratings at A.M. Best, of PIP costs and medical inflation. "It is a concern, from our perspective. It is having a negative impact on some companies' results."
Out of New Jersey's XX auto writers, XX had no-fault adjusted loss ratios above XXX in 2010, according to BestLink.
Insurers can try to handle the PIP costs by raising rates, but "it's not sustainable to keep doing that given the magnitude of rate needs," Attanasio said.
Some XX% of rate requests are related to PIP coverage, according to Eric M. Goldberg, American Insurance Association regional vice president for the Mid-Atlantic region. He said PIP costs are offsetting the benefits of the earlier reforms.