According to no less an authority than financial mogul Warren Buffett, the New Jersey auto insurance market is vastly better today than it has been in years.

Indeed, there appears to be a direct correlation between the improvement and the New Jersey Auto Insurance Competition and Choice Act (NJAICCA), which was signed into law in June 2003.

Even so, there is more to do. In fact, legislation has been introduced in the Legislature to limit the ability of insurance companies to select risk criteria for underwriting auto insurance.

In particular, Geico has been criticized for using education and job status as criteria for establishing risk. If this legislation passes, it could have a very bad effect on the industry and set the clock back.

Before NJAICCA, more than 20 insurance companies left New Jersey in 10 years, and there were no entrants into the state's auto insurance market for more than eight years. As firms exited, insurance costs predictably increased.

New Jersey consumers had little choice compared with consumers in other states, and insurance premiums were expensive even considering that New Jersey is densely populated.

Since NJAICCA, Mercury General, Geico and Esurance have entered the market. AIG has suspended plans to leave. State Farm has reentered, and Allstate has expanded its insurance products.

As firms have entered the New Jersey market, prices have predictably declined. There has been $343 million in rate reductions benefiting more than two million New Jersey drivers. About 41,000 previously uninsured motorists now have insurance. The state has 1,500 new auto insurance agents serving consumers.

Price changes are sanctioned by the New Jersey Department of Banking and Insurance. Before NJAICCA, the department did not respond quickly to a firm's request to change prices. NJAICCA calls for a quick response. Apparently, the department is taking this call seriously, and so far it is responding rapidly.

NJAICCA also reforms a tax on so-called excess profits that forced a firm to return money to its policyholders if profits exceeded 6 percent. Several changes have been made here, such as increasing the amount of profits the firm can keep.

Finally, the act allows firms to use generally accepted industry methods of determining risk. Its methods, however, are still subject to approval by the Department of Banking and Insurance.

By slowing price changes and limiting profits (but not losses), the government of New Jersey discouraged auto insurers from writing policies, and this ultimately harmed the New Jersey consumer.

NJAICCA, however, is a palliative - it is not a cure. It alleviated many problems; it did not solve them. It merely relaxed regulations; it did not deregulate the industry.

Indeed, as noted, there is an attempt to further regulate the industry by limiting the ability of firms to determine risk criteria. Prices, profits and risk determination are still political matters even if the political environment is more congenial to auto insurance buyers and sellers than it was.

The only long-term cure is to deregulate the industry. It is not the government but the market that is bringing about healthy changes in the auto insurance industry.

This is cache, read story here