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A Deregulation Success Story

Three years ago New Jersey’s government eased many of the regulations that it had long imposed on auto-insurance suppliers and consumers.  Today’s New York Times has a report on the consequences:

For the first time in decades, prices for coverage are falling in
the state [New Jersey] and insurance companies are fighting for drivers’ business.
Roadside billboards cry out with special deals; radio and television
are peppered with car insurance advertisements.

It is a mammoth
change in a state where auto insurance has been a long-running
nightmare and it puts New Jersey in line with auto insurance practices
in most of the country.

More tellingly, it provides a case
study in what happens when competitive forces are unleashed and markets
are allowed to operate more freely. And while some drivers are worse
off, the vast majority of consumers have gained from the changes.

the country, New Jersey and Massachusetts stood out for their heavy
regulation. Some of the biggest insurers shunned the states. But that
started changing in New Jersey when state officials, worried that even
more insurers would leave, finally decided to give the industry much
more flexibility with prices and driver ratings.


The insurers had always seen great potential in New Jersey with its
largely affluent population and one of the greatest concentrations of
cars in the nation. They increased their pressure in a long campaign
for change, and Gov. James E. McGreevey
and the State Legislature stepped back and let market forces work. It
was not radically different from the way auto insurance was sold in
most of the country. But in New Jersey it was revolutionary.

insurers have been pouring millions into advertising. Television
stations in New York and Philadelphia blanket the state. In the New
York market, which extends as far south as Trenton, spending by auto
insurers more than tripled to $17.4 million in 2005 compared with 2003,
according to Jon Swallen, the director of research at TNS Media
Intelligence in Manhattan. In Philadelphia, spending in the same period
rose nearly fourfold to $17.2 million.

In place of the few
rigid rate categories, insurers are now employing computer programs to
come up with hundreds, if not thousands, of gradations in prices. The
insurers say these programs, now in use in most states, enable them to
better match prices to the risk presented by each driver.

result, generally, is that better drivers pay less and worse drivers
pay more. That has been widely accepted because there are far more
drivers with unremarkable records than ones checkered with crashes and
speeding tickets.