The approval came after more than 150 insurance companies' employees and agents as well as consumers staged a rally on the State House steps in Trenton, N.J., before the Senate hearing took place.

The new reform bill is intended to boost competition by bringing more insurance companies to the New Jersey market.

Despite recent premium price hikes for New Jersey drivers, the bill stayed away from any rate rollbacks.

New Jersey Banking and Insurance Commissioner Holly Bakke noted that nearly half of the companies writing auto insurance in New Jersey did not make a profit last year and many are in weak financial condition.

The measure would also revise some regulations insurers said make New Jersey unattractive for their industry.

The Newark, N.J.-based Coalition for Auto Insurance Competition, which organized the demonstration, said it supports legislation that stimulates competition and choice in the auto insurance market. Excessive state regulation of auto insurance, the group said, is one of the main causes of insufficient choice and competition.

In New Jersey, the group said, tens of thousands of drivers currently cannot find auto insurance coverage, as more insurers have closed their business in the state. More than 26 auto insurers have left the state in the last ten years, six in the last 11 months. Additionally, five of the six largest auto insurance companies in the United States no longer write auto business in New Jersey.

"This is a tremendous step forward on the long path we must travel to restore stability to the New Jersey auto insurance market," said Richard Stokes, a representative for the Downers Grove, Ill.-based Alliance of American Insurers.

"The problem with the New Jersey market is that, for the past three decades, it has not projected the climate of stability and certainty that is necessary to entice insurers to commit capital and other resources to the state," said Mr. Stokes, who also attended the Senate Commerce Committee hearing and submitted written testimony.

If new companies are to be attracted to New Jersey, and if those already doing business there are to be encouraged to write more business, the state must enact a prompt, objective and fair rate-review system, Mr. Stokes said.

"Under current conditions, it can take up to two years for insurers to obtain sorely needed rate approvals. This is not the proper signal to send when the objective is to expand auto insurance availability by encouraging new companies to enter the state," he said.

In approving the McGreevey administration bill, the lawmakers also made it easier for insurers to leave the state if they are not making a profit.

Mr. Stokes noted that the bill does not have as much bureaucracy in the withdrawal requirements for insurers compared to current requirements in the state.

The bill also requires non-renewals to be performed on an equitable geographic and demographic basis. Additionally, if two insurers with 25 percent or more of the market seek withdrawal within a one-year period, the phase-out withdrawal period can be extended from a three-year timeframe to five years. The bill would also allow the insurance commissioner to determine whether certificates for other lines of business must be surrendered as well.