Phone lines at New Jersey auto insurance companies promise to get even busier as the state's largest auto insurance company begins shedding customers. State Farm Indemnity Co. is randomly selecting 4,000 policyholders a month who will have their coverage terminated under an agreement with state regulators. The 60-day advance notices are now being sent, with terminations starting in December. A total of 96,000 customers who signed on with State Farm after Jan. 1, 1996, will be dropped over the next two years.

State Farm has been ordered to keep the vast majority of its customers for at least the next three years, but phone lines to its competitors continue to overheat as drivers seek to jump ship immediately.

State Farm says its losses in New Jersey have narrowed to $1.12 paid in claims for every dollar it collected in premiums over the past year. In the second quarter of 2001 State Farm was paying $1.25 in claims for every dollar it was collecting. "You have to note that a 112 percent loss ratio still isn't very good," says State Farm Indemnity spokesperson Christopher Neal.

And motorists will be getting a nudge from state officials. The New Jersey Department of Banking and Insurance is sending a letter to State Farm customers that their coverage may be dropped, and what steps they should take. The letter will include information about their driving history and other factors State Farm used in its underwriting. That information could shorten the amount of time needed to get a quote for new coverage.

The department will also work to get member companies to accept consumers into their groups. The groups, exempt from the state's "take all comers" law, would send questionnaires to consumers and may offer quotes to those who fit into their respective groups.

Several insurers contacted by Insure.com admit to stresses on their resources in New Jersey caused by the upheaval in the marketplace, in part to others threatening to pull out of New Jersey and the state's requirement that auto insurers "take all comers," except for customers with horrendous driving records.

One company, No. 3 in market share, New Jersey Manufacturers Insurance Co. (NJM), took the unusual step in August of writing to policyholders to apologize for delays in answering telephone calls, as existing customers waiting for service are competing with new customers for overtaxed service representatives.

State Farm has stopped selling new policies and had threatened to pull out of New Jersey, saying it is losing massive sums of money while unable to raise rates, due to state regulations. It agreed in late June to remain in the state and review its financial position in 2005. With more than 730,000 autos insured, State Farm is shedding about 4,000 customers a month under a consent agreement reached with the state in June. American International Group also stopped selling new policies and threatened to leave entirely.

"We thought that once State Farm said it wasn't going to leave that our call volume would return to more normal levels, but that hasn't happened," NJM spokesperson Patrick W. Breslin says.

NJM has been selling new policies for about 3,000 cars per month for the past six months, more than double its usual 1,000 to 1,500 new policies per month. And even as it continues to hire staff and expand its offices, delays will remain for the foreseeable future because new hires have to be trained.

"Liberty Mutual is one of 35 companies in the state that can potentially absorb State Farm's business. We, like the others, are having our capacity challenged, as we do everything we can to minimize disruptions in service," says Liberty spokesperson Glenn Greenberg.

Liberty Mutual is now the No. 4 auto insurer in New Jersey, with 375,000 policyholders.

James Griffin, spokesperson for Allstate in New Jersey, says that company now insures about 635,000 vehicles. In a year-to-year comparison of new policy sales between March 2001 and March 2002, before and after State Farm made its intentions known, Allstate's New Jersey auto insurance policies sales zoomed by 34 percent.

Likewise, Prudential spokesperson Michael Arcaro says increased sales volume from 2001 has been unabated this year. The insurers don't see much relief from the situation unless Gov. James E. McGreevey can implement promised reforms and the legislature acts.

Mary Caffrey, spokesperson for the New Jersey Department of Banking and Insurance, says while regulators are usually skeptical of insurers' claims about their inability to adequately service customers, they aren't this time. "The volume of shopping has been known to the department for some time," she says.