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					Understanding New Jersey’s




        New
       Auto
     Insurance
      System
           U
                                     T
                                            he Automobile Insurance Cost
                                            Reduction Act of 1998 (AICRA) is
                                            the latest legislation to address
                                     problems associated with the high cost
                                     of automobile insurance in the Garden
                                     State. A number of dramatic changes
                                     will occur to the state’s auto insurance
                                     system as a result of this new law that
                                     all drivers should know and understand.
TABLE OF CONTENTS
                                     In addition to allowing consumers more
Consumer Choice ..............2      choice in selecting coverage limits, signifi-
Cost Containment                     cant measures will be implemented to
& Anti-Fraud Measures ......3
                                     reduce insurance fraud and abuse.
Territorial Rating
Commission ......................4   The cost reduction measures are aimed
                                     at controlling the cost of what auto
Eliminating Surcharges ......5
                                     insurance pays for – medical treatment,
Why is New Jersey Car                lawsuits and vehicle repairs. Each year
Insurance So Expensive?....5
                                     insurers pay over $2 billion in legal,
How You Can Control
                                     hospital and doctor bills. By eliminating
Your Own Auto
Insurance Costs..................6   inappropriate medical treatment, frivolous
                                     lawsuits and other types of fraud, the
                                     legislation requires that automobile insur-
                                     ance rates be reduced by approximately
                                     $700 million or an overall average of
                                     15 percent.

                                     Consumers who purchase new automobile
                                     insurance policies or whose policies are
                                     renewed on or after March 22, 1999 will
                                     benefit from the implementation of the
                                     various reforms and the mandatory rate
                                     reduction.    U
                                     1
T    he following is a brief summary of the changes in the
     law that could affect you as a New Jersey motorist.

 CONSUMER CHOICE
You will have more choices under the new law. These choices
give you the option to choose coverage limits that best fit your
individual needs at the time you buy or renew your policy.

Basic Policy                                  is $15,000 for injuries to one person
The new law will let you choose               and $30,000 for all injuries in an
either a “standard” auto insurance            accident. Property Damage Liability
policy or a new “basic” type of               pays for damage you cause to others’
policy. The new basic policy allows           property from an accident. The min-
vehicle owners to purchase lower              imum required coverage is $5,000.
amounts of certain coverages than            • Uninsured/Underinsured
New Jersey law previously required.            Motorist – These coverages protect
A basic policy offers $15,000 in               you against damages and injuries
personal injury protection coverage            caused by drivers who are uninsured
and includes up to $250,000 of                 or inadequately insured. These
medical benefits coverage for                  coverages are not available under a
catastrophic-type injuries, $5,000             basic policy. Minimum limits are
property damage liability and an               the same as for the liability cov-
option to purchase $10,000 of bodily           erages and the basic deductible
injury liability coverage. If you purchase     is $500 for property damage.
a basic policy, you can cannot               • Optional Coverages — Collision
purchase uninsured/underinsured                coverage pays to repair your car
motorist coverage. Companies                   after an accident, no matter who
can, at their option, also offer to            is at fault. Comprehensive cover-
sell collision and comprehensive               age pays for auto theft, glass
coverages with this type of policy.            breakage and damage from van-
                                               dalism, fire, flood and flying
Standard Policy                                rocks and debris.
A standard auto insurance policy
offers motorists a variety of coverage       Options on PIP Limits
options. State law requires you to           Consumers will also have new
purchase certain minimum limits              choices with regard to their personal
of three coverages:                          injury protection or PIP benefits
• Personal Injury Protection –               coverage. New Jersey law previously
  PIP pays for injuries to you and           mandated that all policyholders
  your passengers, no matter who             purchase $250,000 of PIP benefits.
  is at fault in an accident. Insurance      PIP pays for injuries to you and
  companies must offer you up to             your passengers, no matter who
  $250,000 of coverage.                      is at fault in an accident.
• Liability Coverages – Bodily               Under the AICRA reform law,
  Injury Liability pays for injuries         individuals purchasing a “standard”
  you cause to others in an acci-            policy have the option of choosing
  dent. Under a standard policy              various levels of coverage, $250,000,
  the minimum coverage required              $150,000, $75,000, $50,000 or
                                                                                      2
    $15,000. All the options include          companies must offer is the
    catastrophic-type injury coverage         option of purchasing the Named
    of up to $250,000. If you do not          Excluded Driver Provision. If there
    choose among these options, you           are vehicles on your policy that
    will automatically be given the           certain driver(s) living in your
    standard $250,000 of coverage.            household do not drive, you can
    The reform law also encouraged            “exclude” those drivers from hav-
    insurance companies to develop            ing coverage on those vehicles. If
    various deductible, co-payment and        the “named excluded driver oper-
    pre-certification plans to combat         ated the vehicle(s)” physical dam-
    fraud and abuse of auto insurance         age coverage benefits (collision or
    medical benefits. Consumers should        comprehensive) would be not be
    carefully review these plans.             available. The vehicle would con-
                                              tinue to be covered under the lia-
    Named Excluded                            bility and personal injury protec-
    Driver Provision                          tion coverages regardless
    Another choice that insurance             of who drives the car.  U
     COST CONTAINMENT &
     ANTI-FRAUD MEASURES
    The reform law also includes several initiatives to cut costs
    and combat fraud and abuse.

    New Definitions in Your Policy            license various medical professionals,
    The reform law requires insurers          the Department approved a set of
    to include new definitions for the        medical treatment guidelines and
    terms medical expense, medical            a list of valid diagnostic tests. The
    supplies, economic loss, health care      new rules ensure that injured auto
    provider and medical necessity in         accident victims receive prompt
    their policies. This is meant to combat   medical treatment from responsible
    unnecessary treatment and                 medical professionals while adding
    unscrupulous medical providers by         reasonable controls to prevent
    clarifying what these terms mean          widespread fraud and abuse.
    and the insurance benefits they cover.    Under these guidelines, it remains
                                              the policyholder’s right to choose
    Medical Treatment Protocols               their own physician.
    and Diagnostic Tests
    In an effort to combat tens of millions   New PIP Dispute
    of dollars of fraud and abuse in          Resolution System
    the state’s auto insurance system,        Prior to the reform law, disputes
    the reform law required the New           over excessive or inappropriate
    Jersey Department of Banking &            medical treatment were resolved
    Insurance to establish guidelines         by panels of lawyers — not doctors
    for the standard treatment of injuries    — and a typical claim could take
    sustained in automobile accidents.        12 to 18 months to be processed.
    After months of research and              Under the new arbitration system,
    dialogue with state boards that           independent medical review boards
3
of doctors and full-time professional       prosecuting suspected insurance fraud.
arbitrators will review and settle
disputes regarding medical benefits.        Body Shop Repair Provision
New Threshold                               This provision preserves your right to
                                            choose the auto body shop or repair
to Limit Lawsuits                           facility of your choice. However, if
Since 1989, New Jersey policyholders        the auto body shop or repair facility
have been able to choose between            you choose does not have a prior
Bodily Injury Liability coverage            arrangement with your insurance
with a Lawsuit (or Verbal) Threshold        company, or if the shop is not a
or a No Threshold option. Your              member of the company’s network of
selection of one of these thresholds        shops, the insurance company may
determines your ability to sue for          require the shop to repair your vehicle
“pain and suffering” for injuries           under the same terms and conditions
you sustain in an auto accident.            as their network shops. In this case,
                                            the shop chosen by you would be
To reduce the number of non-serious
                                            required to sigh a notification that
and frivolous lawsuits, a new
                                            your manufacturer or dealer warranty
“Limitation on Lawsuit” Threshold
                                            or lease agreement may be jeopardized.
will replace the present Lawsuit
Threshold. The new threshold
allows you to sue for “pain and
                                            Mandated Rate Reduction
suffering” should someone else              AICRA reform law requires insurance
injure you in an accident and if            companies to reduce rates for various
the injuries are: serious injuries          policy coverages. The overall result is
which your physician certifies are          a premium reduction of approximately
permanent in nature or result in            15% for a “typical” policy. However,
death, dismemberment, loss of a fetus,      because the policy coverage selec-
displaced fracture or results in signifi-   tions each driver makes varies widely,
cant disfigurement or scarring.             the actual amount of your rate
                                            reduction will depend upon a number
Office of Insurance                         of factors, including the types and
Fraud Prosecutor                            amounts of coverage you choose.
The reform law created the Office of        In March 1999, insurance companies
the Insurance Fraud Prosecutor. The         filed new auto insurance rates that
Prosecutor, who works within the            reduced the rates they charge by
New Jersey Attorney General’s Office,       over $700 million as required by
is charged with investigating and           the AICRA legislation.    U
 TERRITORIAL RATING COMMISSION:
 Rating Territories to be Revised
Currently, state law places a cap on        insurance premiums in these capped
the auto insurance premiums that            areas are inadequate to cover the
can be charged in certain areas of          losses that are generated there and
the state, even though these areas          force other New Jersey drivers to
generate more accidents, claims             subsidize the rates. The new reform
and lawsuits than other parts of            law mandates a state-appointed
New Jersey. The result is that auto         commission review and revise these
                                                                                      4
    geographic territories for the first       tation of these revisions should
    time since about 1940. Implemen-           begin after January 1, 2000.   U

     ELIMINATING SURCHARGES
    Prior to the passage of AICRA, the         of risk characteristics, including
    state Legislature eliminated mandatory     driving record, years of experience,
    insurance surcharges and moved New         vehicle type and coverage limits when
    Jersey to a new and more responsible       determining a driver’s tier placement.
    system of charging automobile
    insurance premiums – tiered rating.        Companies have developed a variety
    The new tiered rating system is            of tiered programs for the different
    designed to identify and provide the       types of drivers and vehicles they
    lowest premium to low risk-drivers,        insure. This makes it more important
    rather than simply penalizing              than ever for consumers to shop
    motorists for accidents and DMV            around because tier systems and
    violations. Insurers consider a number     rates can vary considerably.  U

    Why is New Jersey Car Insurance
    So Expensive?
    W
              e are all aware that auto-         you can begin to understand the
              mobile insurance in New            enormous costs incurred by insur-
              Jersey is very costly. On          ance companies to defend policy-
    average, we pay the highest premiums         holders against these suits and to
    in the nation. Why do New Jersey             settle these types of claims. New
    drivers have such high insurance             Jersey insurers have paid more than
    costs? Certain characteristics of            $12 billion in the last eight years to
    our state drive up the cost of auto          resolve these types of lawsuits.
    insurance in New Jersey and con-           • Medical Costs – The rising cost
    tribute to the rates you pay:                of medical care continues to be
    • Demographics – With its 1,065              a major contributor to the cost
      people per square mile, New Jersey         of auto insurance in New Jersey.
      is the most densely populated              Insurance companies have paid
      state in the nation. As a result,          over $3.2 billion in the last four
      we have more registered motor              years for medical claims resulting
      vehicles per square mile (782)             from auto accidents.
      than any other state. Add to this        • Insurance Fraud and Abuse –
      New Jersey’s more than 34,000              The Washington D.C.-based
      miles of roads and highways and            Coalition Against Insurance Fraud
      it’s not surprising that there were        estimates that auto insurance
      more than 250,000 reported                 fraud and abuse annually costs
      accidents in 1998.                         each household in New Jersey
                                                 $297.50 or about $800 million a year.
    • Lawsuits – When you consider
      that more than 164,000 “pain             • Auto Theft – Auto theft in New
      and suffering” lawsuits were filed         Jersey continues to be a major cost
      in the last three years in New Jersey,     factor. While the number of auto
5
 thefts has decreased in recent             he or she may be fined or penalized
 years, the cost of replacing stolen        for driving without insurance, but
 cars and parts continues to increase.      it’s the insured driver’s insurance
                                            company that pays for the damage.
• Uninsured Drivers – There are
  an estimated 400,000 to 600,000          • High Cost of Living – New Jersey’s
  uninsured drivers on New Jersey’s          cost of living makes auto repairs and
  roads and highways. When an                medical treatment more expensive
  uninsured driver causes an accident,       than in other states.   U
How You Can Control Your Own
Auto Insurance Costs
A
      ll drivers are concerned about          the insurer, policyholders can save
      the high cost of auto insurance.        as much as 75% on their bodily
      The following are some tips on          injury and property damage liability
how you can control your own costs            coverage premium. The new
and spend your premium dollar wisely:         threshold allows you to sue for
                                              “pain and suffering” should some-
• Shop Around – With the new tiered           one else injure you in an accident
  rating system and cost saving reforms,      and the injuries are: serious injuries
  premiums vary widely as New                 which your physician certifies are
  Jersey moves to a more competitive          permanent in nature or result in
  marketplace. It pays to call an             death, dismemberment, loss of a
  independent insurance agent or              fetus, displaced fracture or significant
  several insurance companies. They           disfigurement or scarring. Selecting
  can help you compare prices and             this threshold does not diminish
  levels of coverage before purchasing        your medical benefits coverage.
  or renewing an auto insurance policy.
                                            • Investigate Discounts –
• Raise Your Deductibles – A
                                              Policyholders are often eligible for
  deductible is the amount of money
                                              a number of discounts including,
  you contribute before the insurance
                                              multicar, good student, defensive
  company begins to pay. The higher
                                              driving, carpooling and discounts
  you set your deductibles, the lower
                                              for safety features and anti-theft
  your insurance premium will be.
                                              devices. Also motorists who
• Change Your PIP Benefit                     successfully complete an approved
  Options – You may have your                 defensive driving course may
  auto insurance company provide              receive discounts on their auto
  primary PIP benefits or you may             insurance.
  choose to have your health insur-
  ance provider be the primary              • Buy a Safe Car – Before you buy
  payer for auto accident-related             a car, find out how expensive it
  medical bills. Check first to see if        will be to insure. The prices can
  your health plan offers primary             vary significantly depending on
  coverage for auto accident injuries         the make and model and whether
  before selecting this option.               the car contains safety features.

• Choose the New Limitation on              • Drive Safely – One of the best ways
  Lawsuit Option – Select this                to keep your insurance premiums
  threshold instead of the zero dollar        down is to maintain a good driving
  threshold option. Depending on              record. U
                                                                                6
  Published as a public service by



   Independent Insurance Agents
          of New Jersey



   Professional Insurance Agents
            of New Jersey

   Insurance Brokers Association
           of New Jersey




   Insurance Council of New Jersey
                 &
        New Jersey Insurance
       Education Foundation

     820 Bear Tavern Road,
           Suite 303
    Ewing, New Jersey 08628
         609/882-4400

Learn more about auto insurance
reform at the following web sites:
          www.icnj.org
    www.njautoreform.com

				
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