New Jersey’s Insurance Market is At Risk, Again

By John Tiene

In the late nineties into the early two-thousands, New Jersey was the worst market to sell personal auto insurance in the country. After thirty years of aggressive state regulation and political grandstanding, auto insurance companies were exiting the marketplace in droves, leaving consumers with few options and sky-high costs.

The availability issue was so severe that only two large insurance carriers remained in New Jersey, and were only hanging on by a thread. These last two companies represented more than one million policyholders in the state that could not be absorbed back into the depleted market since twenty carriers had already left along with their capital. The lack of competition in the marketplace was a true crisis that caused drastic rate hikes, which drained the pockets of hard-working Garden State residents.

Back then, the legislature understood the severity of this problem and knew they must take action to save a market that was teetering on the brink of total collapse. The government worked with a host of different stakeholders to reform the system to ensure insurance was accessible and affordable for consumers. In 2003, as President of the Insurance Council of New Jersey, my team and I worked to develop and pass a comprehensive legislative initiative to reform our antiquated system. It was a true bipartisan achievement that attracted companies back to the market, created more competition, gave consumers more choices, and lowered rates for policy holders.

Sixteen years later, the New Jersey legislature is considering a bill that threatens to bring us right back to those dark days.

The New Jersey “bad faith” bill would dramatically broaden opportunities to sue insurance companies for minor delays in processing claims.  Simple mistakes resulting from the ordinary course of business could turn into expensive and time-consuming litigation. These frivolous lawsuits would force companies to pay big settlements, which would invariably get passed on to consumers through higher premiums.

It should not be a surprise that the state’s trial lawyers are pushing hard for this piece of legislation to pass, without regard to its unintended consequences that would devastate consumers and the market. They are the ones that would profit the most from the excessive lawsuits, leaving consumers to foot the bill. According to a recent Milliman study, when similar legislation passed in Florida, attorney involvement in insurance claims increased by nearly 20%, unnecessarily increasing the costs to settle minor claims. This harmful and unnecessary piece of legislation would stifle all the progress made and gin up extra business for trial attorneys.

Without any rational justification, the legislature has been unable to point to a single problem that this bill would solve or explain how it would better protect consumers. As a result of the 2003 reforms, New Jersey has one of the toughest sets of regulatory and statutory consumer protections for insurance customers in the nation. New Jersey’s restructured market balanced the need for competition with strong protections for consumers and it is now among the most competitive in the country.

We cannot allow this legislature to ignore the lessons learned from the past. The New Jersey Legislature must reject A-3850/S-2144.

John Tiene is a longtime leader in New Jersey’s insurance community and served as the first President of the Insurance Council of New Jersey.