The New Jersey Citizens United Reciprocal Exchange (NJ CURE) believes it has the answer to escalating auto insurance premiums, at least for good drivers.

A reciprocal exchange is a group of individuals, corporations, or entities that, as members, agree to exchange contracts of insurance and share the risks among themselves. The members (policyholders) of a reciprocal exchange appoint an attorney to manage the affairs of the exchange.

While the concept of a reciprocal exchange is not new — USAA, which offers auto, home, and life insurance, as well as other financial services to the military and their families, owns and manages more than $60 billion in assets for its members — NJ CURE stands out as a not-for-profit company.

According to NJ CURE, not needing to generate profits for outside investors combined with its direct marketing approach allows it to charge much lower premiums than other insurers in the state — in some cases charging slightly more than half of what a for-profit, commercial auto insurer would charge. New Jersey has the highest auto insurance rates in the country.

Of course it doesn't hurt that NJ CURE is one of the handful of auto insurers exempt from New Jersey's "take all comers" law.

According to Peter Hartt, a spokesperson for the New Jersey Department of Banking and Insurance (DBI), NJ CURE is allowed by state law to be more selective in offering insurance than commercial insurers.

Who qualifies?

NJ CURE's philosophy is that no risk is better than a bad risk, so the company will automatically exclude anyone with less than three years of driving experience or anyone who exhibits a pattern of risk by having more than one at-fault accident, more than two four-point moving violations, or more than two not-at-fault accidents on their driving records in the past three years.

The insurer will also automatically exclude anyone who has had a driving while intoxicated (DWI) conviction, as well as anyone whose roommates or family members have a DWI record within five years of the application.

Additionally, while NJ CURE will not drop long-time customers whose children are approaching driving age, they won't offer new insurance policies to couples with teens.

NJ CURE is targeting the best of New Jersey drivers, but state insurance regulators aren't concerned that the company will siphon off the most sought-after drivers and cause drivers with less perfect records to have difficulty obtaining insurance.

"There would have to be an unimaginably large increase in those types of operations to cause a problem," says Hartt.

According to Hartt, if the state saw the potential for reciprocal exchanges like NJ CURE causing accessibility problems for other drivers, regulators would consider those problems during the licensing process.

Not always the cheapest

Furthermore, just because a company is a nonprofit doesn't mean that it will necessarily be the cheapest, according to Hartt.

"There are so many factors that go into the cost of an insurance policy that you can have literally hundreds of dollars separating the cost of a policy from one company as opposed to another," says Hartt.

Also, there can be some hidden costs involved in reciprocal exchanges. According to the DBI, members must pay a management fee of about 12 percent of their annual premiums to the attorney who runs the company, and an additional charge of approximately 10 percent of their premiums is levied until NJ CURE has amassed the surplus required by law.

"You can't make the assumption that just because company A is a nonprofit that it will necessarily be cheaper than company B," says Hartt. "The important thing for consumers is to shop around and compare the prices they are quoted from a number of insurance companies."