#nj auto insurance
Vehicles damaged by superstorm Sandy, such as this car in Moonachie, are not the reason regulators have approved rate increases for 26 New Jersey insurance companies so far this year.
Auto insurers are raising rates in New Jersey this year, in some cases by double digits, unwelcome news for motorists in the nation’s highest-priced market.This time, motorists might be willing to cut the insurance companies some slack in light of the hundreds of millions of dollars they paid to policyholders whose sedans and SUVs were wrecked by superstorm Sandy in October.
However, insurers and the state regulator say Sandy is not the reason the state has approved rate increases for 26 insurers so far this year. The rate hikes are driven by factors such as losses related to Tropical Storm Irene and the Halloween nor’easter from two years ago, medical costs that are trending higher, reinsurance expenses and lackluster forecasts of investment income, industry experts say.
“Irene is starting to have somewhat of an impact on comprehensive coverage,” said Marshall McKnight, spokesman for the New Jersey Department of Banking and Insurance, which provided The Record with data on recently approved insurer rate increases.
Three of the state’s top four insurers Allstate, New Jersey Manufacturers Insurance Co. and State Farm are among those whose rate hikes were approved.
Allstate, the second-biggest insurer in the state with $958.1 million in premiums according to 2011 figures from the New Jersey Department of Banking and Insurance, the latest data available sought a 6.9 percent increase, but the state regulator permitted a 4.8 percent hike. That increase follows two last year of 6.8 percent and 3 percent, respectively.
Allstate, which did not respond to requests for comment, reported catastrophe losses of $1.06 billion in the fourth quarter, mainly because of Sandy.
New Jersey Manufacturers, the state’s third-largest auto insurer with about $859.5 million in annual written premiums, will lift its rates on new and renewed policies by 4.9 percent on average, beginning June 1.
The cost of a typical $1,300 policy will rise to $1,364 a year. That follows increases in each of the past three years. Prior to that period, the company had not boosted auto rates since 1996.
The latest increase is “modest and necessary,” said Eric Stenson, a spokesman for the West Trenton-based company. He said the biggest reason of this year’s rate increase was not physical damage, but higher personal injury and bodily injury claims.
NJM has reported about $87 million in Sandy-related auto losses, to be reflected in future price changes.
In January, State Farm Guaranty Insurance Co. which serves riskier drivers, raised its rates by 7 percent on average, adding $91 to a typical policy that used to cost $1,300. At the same time, State Farm Indemnity Co. the larger of the two subsidiaries, raised rates by 1.8 percent. State Farm is the No. 4 auto insurer in the state with $606.9 million in premiums.
“Sandy was not a factor in the rate filings,” said Arlene Lester, a State Farm spokeswoman.
Sandy-related increases will come later.
Other insurers receiving rate increases include Hartford Underwriters Insurance Co. (12.9 percent) and 21st Century Centennial Insurance Co. (11 percent).
Even though the effects of Sandy may not yet be reflected in rate hike requests from insurance companies, the impact on drivers in New Jersey which ranks highest in the nation with an average policy costing $1,157.30, according to National Association of Insurance Commissioners probably won’t be that much, said J. Robert Hunter, director of insurance for the Consumer Federation of America.
“I wouldn’t expect more than a 1 percent increase from Sandy,” he said. They will make up for those losses over time, and not entirely on the backs of New Jerseyans and New Yorkers, where most of the damage was done.
To be sure, auto, home and business insurers were roughed up by Sandy. They will pay an estimated $18.8 billion in related claims, separate from claims filed with the government’s flood insurance program.
Sandy is the third-most expensive storm in U.S. history, behind Hurricane Katrina in 2005, which generated $48.7 billion in claims, and Hurricane Andrew in 1992, which resulted in $25.6 billion, according to the Insurance Information Institute, which adjusted for inflation.
No need to weep for Allstate, Geico and other insurers. The property and casualty industry was well reserved and had enough reinsurance (insurance for insurers) to handle the losses, experts say.
Warren Buffett’s Berkshire Hathaway reported last month that its insurance businesses, which include auto insurer Geico, narrowed their fourth-quarter underwriting loss to $19 million from $107 million a year earlier, despite super-sized Sandy claims costs.
Geico insured about 47,000 vehicles destroyed or damaged by Sandy, suffering a net loss of $490 million. That sum was more than three times what Katrina cost in 2005, Buffet said in his most recent letter to shareholders.
Geico, known for its TV ads featuring a gecko with a cockney accent, entered the New Jersey market in 2004 and in six years grew to be the state’s largest auto insurer, with $976.9 million in written premiums for 2010, according to state records.
The company’s 2013 rate change requests, which took effect in February for new customers and April 1 for renewed policies, averaged out to no change from the previous rates.
A recent analysis by BestLink, A.M. Best’s online analysis and data service, underscores the impact of Sandy on auto insurers in the region. The report said insurers saw “a significant jump” in 2012 physical damage losses in New Jersey in New York, where Sandy hit hardest.
With data from 81 percent of the New Jersey auto insurance market, BestLink found the insurers posted a physical loss ratio of 80.06 percent, which means they paid $80.06 in claims last year for every $100 in premiums collected in that part of the business. That was a 19.64 percentage-point increase in losses from a year earlier. The national average loss ratio for physical damage was 64.14 percent or $64.14 in losses for every $100 in premium collected.
New Jersey Manufacturers, which serves employer groups and their families throughout the state, recently had its outlook lowered by A.M. Best Co. to “negative” from “stable,” in part because of losses from Irene and Sandy. The actions applied to New Jersey Manufacturers Insurance Co. and its subsidiary New Jersey Re-Insurance Co.
The rating agency cited, among other things, “concerns with the deterioration in NJM’s underwriting performance over the past two years in the face of catastrophic weather events, with the associated challenges the group will face if frequent and severe weather events again impact the Northeast.”
At the same time the agency affirmed the financial strength and issuer credit ratings (A++ and aa+, respectively).
Hunter of Consumer Federation of America, a former insurance commissioner in Texas, said some insurers may in the months ahead play up their Sandy losses to regulators in an effort to get more and bigger rate hikes than are necessary, he said.
“They take advantage of these situations,” he said. “They try to slip [increases] through, using that as cover. It requires vigilance on the part of insurance departments to make sure these [requests] are really justified.”