Mercury General Looking To Enter N.J.
By Mark E. Ruquet
NU Online News Service, July 18, 11:51 a.m. EDT?A Los Angeles-based insurer has applied to sell auto insurance in New Jersey just six weeks after the state enacted legislation to revise regulations that insurance carriers said were strangling the marketplace.
Mary K. Caffrey, assistant commissioner for the N.J. Department of Banking & Insurance said Mercury General Corp. has submitted a business plan to provide automobile insurance to customers receiving nonrenewal notices from State Farm Insurance Company, which is phasing out business in the state.
"Their plan would help solve a major issue for New Jersey automobile insurance customers," she said.
Under the plan, Mercury General would give customers who receive a nonrenewal notice from State Farm a quote for insurance. She said that while customers would have the option to shop around for insurance, at least they would have a company in hand to purchase insurance from. Customers, she said, would have the option of opting out of the plan to send their information to Mercury if they wished.
The state is looking to process Mercury's application for entry into the state "as soon as possible, " Ms. Caffrey said, adding that it is expected to be completed "in weeks, not months."
If approved as presented, she said, Mercury would be the first auto insurer in the state to use credit scoring in its underwriting.
She said the state has no prohibition against using credit scoring, a practice which has been under fire from consumer groups as a frequently defective process, which has a negative impact on minorities, low income groups and persons without prior credit records.
Ms. Caffrey said that the department would make sure that the use of credit scoring would be standardized and fair.
"We are pleased that a major carrier with a good A.M. Best rating is looking to come into New Jersey," said Ms. Caffrey. "That is very, very exciting for us."
Over a two-year period, which began in 2002, State Farm is allowed to drop 4,000 renewal policies a month for a total of 96,000 policies. Ms. Caffrey said the state hopes the company will decide against a complete withdrawal.
The company, in announcing its withdrawal, cited heavy losses in the state and complained of the regulatory environment. Under a plan worked out with the department, the company is reducing its share of the state's auto insurance market from a high point of about 20 percent of the market to less than 13 percent today.
Ms. Caffrey said State Farm is now the number three insurer of automobiles in the state, with New Jersey Manufacturers and Allstate now one and two. No company has more than 15 percent of the market, she added. There are five million insured automobiles in the state.
She said the level of risk concentration was too high for State Farm. It is hoped after it has stopped its nonrenewal process, the company will decide to stay in the state, she said
New Jersey, which for years has drawn insurer complaints that it over-regulates auto insurance, on June 9 put into law an omnibus measure, the Automobile Insurance Competition and Choice Act, designed to revise its system.
Its provisions include action to remove the take-all-comers law that requires companies to accept any driver, no matter their risk, a requirement that insurers viewed as onerous. Also included is a revision of the excess profits law to reflect business fluctuations and provision for faster approval of rate increases.
"Things are different and changing in New Jersey," said Ms. Caffrey. "There is a lot of buzz and interest from companies."
Mercury General Corporation reported net income of $42.1 million for the first quarter of 2003 on premium written of $538.8 million. The company reported a combined ratio for the quarter of 94.4 percent.
The company writes insurance in California, Florida, Virginia, New York, Illinois, Georgia, Texas and Oklahoma. It offers personal automobile and commercial lines insurance, but not in all states. Its distribution is through independent agents.
The company's insurance operations are rated "A-plus" by A.M. Best.
A request for comment from Mercury General was not returned.
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