I finally got it to work. I had to set the nextrequest to null, then do my test. If my test fails the next line is not executed so it stops. But if it passes then I clear the null so the collection moves on. whew…
I also moved my variable setting up into the pm.test so they do not occur if the test fails.
pm.test("Status code is 200", function () {
postman.setNextRequest(null);
pm.response.to.have.status(200);
postman.setNextRequest();
//convert to json format
var RespData = xml2Json(responseBody);
//set environment level variable
pm.environment.set("PolicyNumber", RespData['OnlineData.autoSaveDataRs']['$']['policyNumber']);
//return policy number in test tab
pm.test(pm.environment.get("PolicyNumber"));
});