Not By Accident

• Bonnie Brewer Cavanaugh
• October 2006
• 

Eric Poe is passionate about auto insurance. When Poe, chief operating officer for Princeton-based New Jersey Citizens United Reciprocal Exchange (NJ Cure), testified before a state Senate subcommittee in June, legislators were taken aback by his enthusiasm. His impassioned speech against automobile insurance scoring practices prompted N.J. State Sen. Raymond J. Lesniak, D-Union, to inquire, "Did you drink any Red Bull before you gave this testimony?"

Poe still laughs at that story. "I love talking about this because I'm very passionate about NJ Cure and what we do," he explained.

NJ Cure is an anomaly within the New Jersey auto insurance market. It operates as a not-for-profit, reciprocal exchange in which its members pool their resources. Yet the small, independent co-op, which writes only private-passenger auto coverage, is comfortably competing with nationwide insurers in an extremely tight auto insurance market.

Poe attributes NJ Cure's ability to compete with major players to the 16-year-old company's business values and pro-consumer viewpoint. "We adopt probably the most fundamental business model: nobody's rates should be too high or artificially low," he explained. "As a result, we have a niche."

NJ Cure shies away from generally accepted insurance practices such as credit scoring, and does not perform credit checks on potential customers; it does allow members to pay premiums by credit card, phone or the Internet.

The company also offers accident forgiveness (up to two points) for new members and long-term accident forgiveness for loyal members (those who stay three years or more).

"Accident forgiveness is our theme," Poe said. While other insurers also offer accident forgiveness, it's usually at a price—some require enrollment in a higher premium level, with a rate hike as high as 15%, or at the risk of being dropped when renewal time comes around, he added.

"We decided to give it to all of our policyholders for free," Poe said. A recent NJ Cure focus study showed the greatest fear people have about auto insurance is filing a claim. "We're going to forgive all accidents when you're with us," he said.

"I would characterize [NJ Cure] as not necessarily in the mainstream of the typical thought on issues," said Richard Stokes, a regional manager covering Delaware and New Jersey for the Property Casualty Insurers of New Jersey (a branch of the national organization), which represents 259 companies insuring 2.9 million automobiles. Both NJ Cure and its sister medical-malpractice firm, NJ Pure, are members of PCI.

"They have an interesting company dynamic," Stokes said. "They're a little bit outside the mainstream of industry thought." Stokes has known the principals of NJ Cure for nearly a decade. "They're a very dynamic family," he said.

Unusual Business Model

There are only three reciprocal exchanges writing auto insurance in New Jersey: NJ Cure, New Jersey Skylands Insurance Association and Palisades Safety & Insurance Association. A reciprocal exchange, according to A.M. Best Co., is an unincorporated association organized to write insurance for its members, where members are liable for their proportionate share of total liabilities. They also may be assessed for additional funds if needed.

NJ Cure's reciprocal exchange works by requiring its insureds to contribute to a surplus fund; instead of raising surplus by selling shares of stock to outside investors, NJ Cure policyholders make an annual surplus contribution equal to 10% of their annual premium.

Because of its not-for-profit status, NJ Cure also is able to forgo the use of agents, brokers or other "middlemen," eliminating the need for commissions, and instead has clients deal directly with its underwriters. And since it does not depend on outside investors, its premiums are not based on profit-making, Poe said.

Since one of the requirements to become a member of NJ Cure is buying comprehensive coverage on at least one vehicle for a year, NJ Cure drivers are required to buy more insurance than the average New Jersey driver. (The other requirement is a clean driving record for at least 24 months.)

NJ Cure tends to attract the "stereotypical bad drivers" other companies won't insure, or will insure at much higher rates: drivers with perfect driving records but bad credit scores; good drivers living in urban areas; and male drivers under the age of 30. "Those who are paying too much for the risk they pose for the insurer—these are the people we save significantly for," Poe said.

In the past few years NJ Cure has hit some potholes in the consumer complaint department. The company ranked among the worst three N.J. auto insurers for customer complaints in 2005, according to a May study from the state Department of Banking and Insurance. It ranked No. 5 in 2004. The 2005 Auto Insurance Consumer Information Report ranks complaints against insurers with at least 3,000 vehicle policies (there are 35 such carriers statewide). Former N.J. Insurance Commissioner Holly Bakke, in a statement following the release of the department's second annual report, said the ratio between valid complaints and total number of vehicles a company insures is a good indicator of the quality of communication between an insurer and its policyholders. NJ Cure had four valid complaints among 45,580 vehicles in 2005, giving it a valid complaint ratio of 0.09.

In comparison, Allstate, which ranked as the 11th worst in 2005, had 37 valid complaints for 695,124 vehicles insured, for a valid complaint ratio of 0.05.

Growing Up

In 1994, when Poe arrived at NJ Cure as marketing director, the company had an annual marketing budget of less than $50,000, according to the company Web site. In Poe's first four years the marketing budget grew to more than $1.2 million, as NJ Cure more than tripled in size: from insuring 15,000 vehicles in 1998 to more than 48,000 at the end of 2003. Today NJ Cure employs more than 200 people, a jump from its initial staff of 15, and insures some 50,000 vehicles for nearly 40,000 subscribers, Poe said. And it's all new business.

"We've never adopted a book of business, purchased a book, merged, acquired. We've never had an agent or broker," Poe said. "We're a throwback to a 1950s insurance agency. Underwriters talk to all of our customers."

NJ Cure is positioning itself for continued growth. In early 2000, NJ Cure had a 50% abandon rate for people calling to sign up for insurance, but not following through, Poe said. Today that's about 45%.

"The main reason people don't necessarily join us is we still have this old-fashioned method of underwriting," Poe said. In this modern age of online insurance quotes, people don't want to fill out an eight-page application. But all that may change in a few months. Customers soon will be able to fill out an application online, and even wait while NJ Cure verifies their information. "We can place a binding policy based on that," he said.

Learn More

NJ Cure

A.M. Best Company # 11043 (New Jersey

Citizens United Reciprocal Exchange)

Distribution: Direct

For ratings and other financial strength information about this company, visit www.ambest.com.

By Bonnie Brewer Cavanaugh, senior associate editor, Best's Review: Bonnie.Cavanaugh@ambest.com