The Star-Ledger

Insurance Reform Sparks Concern

The Star-Ledger — Sunday, January 11, 2009

Star-Ledger Staff

Just a few weeks ago, insurance agent Robert Perez knew he could find an insurer to cover just about any driver who walked through the door of his agency in Paterson.

No more.

The new year ushered in a new rule that worries advocates for urban drivers: Auto insurance companies are no longer banned from denying coverage to all but those with the worst driving records.

Now companies are allowed to add new wrinkles into their criteria for coverage, such as denying auto insurance for drivers who haven't had a license for at least five years — a requirement set by one company for whom Perez writes policies.

"Not every insurance company is going to do that, but now they have a lot more freedom," said Perez, who works at the Royale Insurance Agency.

Eliminating the "take-all- comers" provision is the last stage of auto insurance reforms that began in 2003. Advocates say they are concerned this will make it harder for many motorists — especially in urban areas — to get insurance at a price they can afford.

"Absolutely, we're worried about it. We're very concerned about it," said Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action.

Marshall McKnight, a spokesman for the state Department of Banking and Insurance, said officials do not expect the demise of take-all-comers to become a problem because deregulation has spawned competition and motorists will be able to shop around to find coverage in the voluntary market.

"The reforms have been given a chance to work and the insurance companies are competing for business," McKnight said. "We see voluntary companies out advertising for business and competing for business all through the state. The voluntary market is working."

Since the start of the year, insurers can deny coverage to any motorist as long as they do not bla tantly discriminate based on factors such as race.

With insurance mandatory in New Jersey, drivers will still be able to buy a policy. But they may have to pay a lot more. Those turned down by two or more companies could be forced into the assigned risk pool reserved for bad drivers, where average premiums are more than twice as high as in the rest of the market.

New Jersey has had nightmares with bad-driver pools. In the 1980s, weak regulations allowed compa nies to save money by dumping half of the state's motorists in the bad-driver pool, pushing it into a $3 billion hole that forced insurers to charge $222 per car just to keep it afloat.

Today, the number of drivers assigned to the state pool — the Personal Automobile Insurance Plans — is miniscule: 22,000, or less than one-half of 1 percent of the more than 5.3 million policyholders. Those numbers were kept so low because it was used for only the worst drivers: those with more than seven insurance points for driving violations or who had a policy canceled for nonpayment of the premium at least a month earlier.

The new rules would allow the high-risk pool to insure as much as 10 percent of the state's insured drivers. The take-all-comers rule would be restored if it exceeded that. Advocates say allowing the pool to swell to 10 percent could force higher rates for too many motorists.

"You could easily have the lowest 9 percent paying discriminatory insurance rates," said Eve Weissman of Citizen Action.

One urban lawmaker, state Sen. Shirley Turner (D-Mercer), thinks insurance regulators may have to revisit that 10 percent mark for restoring take-all-comers.

"They may need to be more diligent to take swifter action before it reaches 10 percent," said Turner, whose district includes Trenton.

Perth Amboy insurance agent John Dyke, chairman of the New Jersey Automobile Agents Alliance, said the loss of take-all-comers" may not be felt now, while the insurance marketplace is thriving, but problems could loom down the road.

The take-all-comers rule was enacted on a temporary basis as part of then-Gov. James E. McGreevey's reforms after urban drivers complained they could not get coverage. Dyke said these drivers will be the first affected by the new rules.

"There's no question about it," he said. "The urban areas are like the canary in the coal mine. When they smell gas, they'll be the first to die."

Peter Guzzo, executive director of Consumers for Civil Justice, said he believes the demise of take-all- comers will require vigilance on the part of insurance regulators to en sure that the ranks of the uninsured and motorists paying higher rates in the high-risk pool do not swell to past levels.

"The insurance department," he said, "should monitor this carefully — so that we don't revert to the bad old days."

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