COMMISSIONER BAKKE ORDERS INVESTIGATION
OF INSURERS REFUSING TO SELL BASIC POLICY

On-site Checks to Examine if Drivers are being Denied Coverage

TRENTON, N.J. - Banking and Insurance Commissioner Holly C. Bakke today ordered an investigation into the auto insurance industry's refusal to sell New Jersey's Basic Policy, a low-cost auto insurance plan that has been mandated by law since 1998.

The Commissioner's action, contained in a series of Orders to Show Cause, are the result of an October survey of how well auto carriers are treating New Jersey drivers. In the test, only one-third of the attempts by investigators to buy a Basic Policy resulted in either a quote or an offer to mail an application.

"Resistance to selling the Basic Policy is widespread and clear-cut," said Commissioner Bakke. "These Orders are the first step in ensuring that the Basic Policy is available for New Jersey drivers seeking that type of policy. For an uninsured driver, it may be the only way to get legal. We must make sure it's available."

Separately, Commissioner Bakke also launched a series of targeted inquiries and Market Conduct Examinations, in which companies that write auto insurance will have to show how they ensure that qualified New Jersey drivers can buy auto policies. The inquiries will combine multiple calls by investigators posing as consumers with on-site inspections.

"While some steps companies are taking may not technically be illegal, they clearly do not meet the spirit of New Jersey's Take-All-Comers law," Bakke said. "These targeted inquiries and Market Conduct Examinations will allow us to gather the evidence needed to levy serious fines and order other corrective action."

Named in the Basic Policy Orders are: Rutgers Casualty, and the Michael J. Hochran Agency; Proformance Insurance Company, and Paul Arnold Associates and J.S. Braddock Agency; Parkway Insurance Company, and Wharton Lyon & Lyon; Hanover Insurance, and Heritage Insurance Agency; Countryway Insurance Company, and the D'Agostino Agency; Chubb Insurance Company of New Jersey, and Brown & Brown Metro, R K Hughes Inc., and Personal Lines Brokerage; Selective Way Insurance Company, and Conover Beyer Associates; and Security Indemnity Insurance Company, and Ernest F. Mason Agency.

This was the second time Department investigators found instances in which companies set up barriers to getting coverage. Companies were warned after a survey in July, but the October survey found lingering problems that called for more intense scrutiny.

Commissioner Bakke noted that some companies are doing a good job selling the Basic Policy. She commended Amica Insurance Company for selling the Basic Policy for 813 vehicles, all of them in the voluntary market. Most people who buy the Basic Policy are in the costlier residual market, reserved for high-risk drivers.

Other companies insuring large numbers of vehicles under the Basic Policy in the voluntary market include Allstate and the Prudential Group. Allstate, NJM Group and Clarendon each insured more than 1,000 vehicles through the Basic Policy in the residual market. As of June 30, drivers of 9,550 vehicles had selected this coverage, up from 8,000 vehicles on December 31, 2001. Statewide, 4.9 million vehicles are insured in New Jersey.

The recent survey, taken the week of October 7, follows a similar effort in July that focused on the responsiveness of auto insurance carriers but not on the availability of the Basic Policy. Results of that survey were shared privately with individual carriers, and Commissioner Bakke warned at that time that such tests would continue.

"The marketplace is tough; we recognize that," Bakke said. "Reform is coming soon to provide more access to the market, more tools to fight fraud, and downward pressure on rates for good drivers."

"We will keep this investigation open until we have answers as to why auto insurance customers are being denied good service, not to mention their right to purchase coverage suited to their needs," she said.

Offering the Basic Policy

Commissioner Bakke repeated her call for carriers and agents to offer drivers the Basic Policy, a low-cost option that she said could bring thousands of uninsured drivers back into compliance.

The Basic Policy was created by the 1998 Automobile Insurance Cost Reduction Act. This "bare bones" coverage option was designed to make auto insurance affordable and available to uninsured drivers. The minimum liability amount, while not for everyone, was seen as a way for drivers with few assets or family responsibilities to drive legally. However, to date only 9,550 of the 4.9 million insured cars in New Jersey are covered by the Basic Policy.

Today, Bakke issued Orders to Show Cause asking eight New Jersey auto insurance carriers to explain how they plan to make the Basic Policy available to drivers who ask for it. "New Jersey has more than 600,000 uninsured drivers, and we won't be able to reduce that number unless consumers are able to get all the options they are entitled to under the law," Commissioner Bakke said. "Until insurance companies and insurance agents give policyholders information on the Basic Policy, policyholders will not have the full range of options mandated by law."

In recent months, the Department of Banking and Insurance has touted the Basic Policy on its Web site, in printed materials and in the media. "Consumers responded to this call, but unfortunately the Department also received complaints that many insurers wouldn't sell this policy," Commissioner Bakke said. "It is especially important to salute Amica for selling so many Basic Policies at a time when many consumers are being denied coverage options."

In response to consumer complaints, Bakke issued a bulletin October 8, 2002, reminding auto insurers that they must sell this policy and that agents cannot be sued for selling low-cost coverage.

"The Basic Policy is clearly not for everyone, and companies and agents should explain to drivers the pluses and minuses of all coverage options. However, it's against the law for insurers to refuse to sell the policy, and we have evidence that this is happening."

Summary of Survey Results

In the survey, investigators posing as consumers called all eligible auto insurance carriers during the week of October 7, 2002. Investigators placed 108 calls; most carriers were contacted three or four times.

A summary of the results follows:

• In 32 calls, investigators successfully received a quote on the Basic Policy or an offer to mail an application.
• In 20 calls, direct writers said they would write the Basic Policy, but said the process takes between four to six weeks.
• Eight calls were placed to two companies that had just transferred their business to Palisades. In some cases they informed the caller of the transaction; in some cases just said, "We're no longer writing in New Jersey."
• Nine calls resulted in unsuccessful attempts to get names of producers who write for the company in question.
• In 24 calls, investigators never reached the producer.
• In 16 calls, the producer refused to write a Basic Policy.
• In three calls, the producer would not sell a Basic Policy, but offered the name of another producer who would write one.

"These are troubling results," Commissioner Bakke said. "They suggest that at best companies and agents are not informed about their duty to offer the policy, and at worst they are purposely violating consumers' rights."

Some examples from the survey:

• Only "Arlynn" takes auto insurance applications. Investigators called back, but "Arlynn" was never available.
• One agent told an investigator that buying a Basic Policy was "like putting a Band-Aid on a bad wound."
• Another agent said, "We don't offer Basic. It's too big a problem."

As a result, Commissioner Bakke announced that she will extend the Department's "Last Chance" program for uninsured drivers until February 28, 2003. The program waives certain surcharges to bring down the cost of getting back into the market. "We envisioned the Basic Policy and 'Last Chance' working hand in hand," the Commissioner said. "If uninsured drivers have been denied the Basic Policy, we need to allow more time for them to get back into the ranks of the insured."