Not by accident: with an unusual business model and a strong emphasis on serving consumers, NJ Cure is gaining ground in the New Jersey private-passenger auto market.

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 6-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 founds 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.

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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.

Key Points

* NJ Cure is a small reciprocal exchange that rates within New Jersey's top-third of auto insurers for direct written premiums.

* NJ Cure's leadership touts consumer rights over industry issues.

* The company says its consumer-oriented business model, including accident forgiveness, allows it to compete effectively against national carriers in a tight market.

New Jersey is No. 1

In auto insurance rates, that is. Three major variables affect state auto insurance premiums: urban population, miles driven per number of highway miles, and disposable income per capita. Traffic density also figures in.

* About 94.3% of New Jersey's population lives in a metropolitan area, making it third in population density behind California at 94.5%, and the District of Columbia at 100%.

* New Jerseyans drove 1.79 million miles per mile of roadway in 2003, putting it fourth behind California, at 1.91; Hawaii, at 2.16; and the District of Columbia, at 2.70.

* In 2003, New Jersey had an average of $34,967 of disposable income per capita. It's behind only Connecticut, with $36,774 and the District of Columbia, with $41,143.

* The combined average personal auto premium in New Jersey for 2003 was $1,365.03. That places the state just above New York with $1,313.28, and the District of Columbia with $1,277.19. The countrywide average for 2003 was $939.19.

Source: The 2002/2003 Auto Insurance Database Report from the National Association of Insurance Commissioners, released Sept. 2005.

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.

Born of Crisis

NJ Cure's slogan, "a better state of car insurance," reflects its history. The company was born out of the New Jersey auto insurance crisis of the 1980s, which saw as many as 40 insurers leave the state due to legislative and regulatory constraints.

Former New Jersey Insurance Commissioner James J. Sheeran founded NJ Cure in 1990 with his wife, Lena Chang, an award-winning insurance actuary, as a panacea to the ailing New Jersey insurance industry. Since the auto insurance reforms of 2002, which made coverage more accessible and affordable to New Jersey drivers, 10 carriers have either entered the New Jersey market or reversed plans for exiting it. Those who entered include Progressive, Geico, Mercury Indemnity, Esurance, Amex and Unitrin. Those who reversed plans for leaving are State Farm, Allstate, American International Group and Travelers, said N.J. Department of Banking and Insurance spokesman Marshall McKnight.

"I think people have this belief that insurance carriers are always out there to [scam] the public and not care about anything unless they make money," said Eric Poe, chief operating officer for NJ Cure. It's a mentality that stems from his relationship with Sheeran, "a strong consumer advocate." In 1981, then-commissioner Sheeran ordered New Jersey insurance companies to stop using factors such as age, sex, marital status and scholastic standing for scoring auto insurance rates, giving them a year to come up with a system that instead used driving experience, mileage and accident records.

Sheeran, who drives the firm as NJ Cure's president, is a decorated World War II veteran who also served in the Federal Bureau of Investigation and completed two terms as mayor of West Orange, N.J., before becoming state insurance commissioner. NJ Cure vice president Lena Chang, who is Poe's mother (his sister Audrey Poe works for sister company NJ Pure), held teaching posts in Taiwan, the University of Illinois and Trenton State College (now The College of New Jersey) before becoming an independent insurance actuary in Boston. Her award-winning article on auto insurance rating systems in Massachusetts eventually led her to the New Jersey insurance department.

J. Robert Hunter, director of insurance for the Consumer Federation of America and a former Texas insurance commissioner, has known both Sheeran and Chang for many years. "Both of them are terrific people in terms of trying to help people," Hunter said. "I would assume the thunders--and Poe as one of their workers--just from their history, that they would be trying to do the right thing as far as consumers."

"There aren't too many insurance commissioners that turned around and ran an insurance company," Hunter added.

Changing the Score

Eric Poe, the chief operating officer of NJ Cure, longs for the "good old days" of the New Jersey Department of Banking and Insurance. There was a time when the department was more consumer-oriented and worked to help insurance companies be more competitive in the marketplace with the belief that directly helping insurers helps consumers. "Back in the '70s, the department of insurance saw itself as a consumer advocate group, if you will, trying to protect what's fair to consumers who know nothing about insurance," Poe said. "Today they make sure competition thrives, pretty much."

In March, Poe and J. Robert Hunter, director of insurance for the Consumer Federation of America, crafted a letter to Alessandro A. Iuppa, president of the National Association of Insurance Commissioners--with copies to the National Conference of Insurance Legislators and state insurance commissioners--calling for a resolution to halt auto scoring based on education and occupation. N.J. Assemblyman Neil M. Cohen, D-Union, soon introduced Assembly bill A2819 to prevent a person's education level and profession from being used as risk factors in auto insurance underwriting in New Jersey. State Sen. Nia H. Gill, D-Montdair, followed with Senate bill S1714; neither bill has seen action yet.

Still, NJ Cure is having a similar effect on other states. After reviewing Poe and Hunter's auto scoring letter, Michigan State Sen. Hansen Clarke, D-Detroit, in August introduced a bill that would end auto insurance scoring based on education and occupation. If passed, the act will prohibit such practices in Michigan as of Jan. 1, 2007. Clarke also cosponsored a move to lower the cost of auto insurance in Michigan--the 10th-highest in premiums, according to the NMC--by forming a reciprocal exchange based on NJ Cure's model.

In Massachusetts, Plymouth Rock Assurance Co. has come out against proposed state legislation that would "appear to allow premium rates to be set with more emphasis on socioeconomic factors such as credit history and occupation, and less on driving record than is currently the case," according to the company's 2005 annual report. Massachusetts ranks sixth-highest in the nation for auto insurance rates.

NJCURE at a Glance

Direct Written Premiums 2005               $46.5 million
Market Share, NJ Private-Passenger Auto            0.77%
2005 Combined Ratio                                110.4

Source: A.M. Best Co.