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Reforming New Jersey's Automobile Insurance System: Five Years Later

Auto reform anniversary report shows auto premiums drop of three straight years.

Download a copy of the ICNJ Auto Reform Report

Since 1989, New Jersey policyholders have been able to choose between Bodily Injury Liability coverage with a Lawsuit (or Verbal) Threshold or a No Threshold option. Your selection of one of these thresholds determines your ability to sue for "pain and suffering" for injuries you sustain in an auto accident.

To reduce the number of non-serious and frivolous lawsuits, a new "Limitation on Lawsuit" Threshold will replace the present Lawsuit Threshold. The new threshold allows you to sue for "pain and suffering" should someone else injure you in an accident and the injuries are: serious injuries which your physician certifies are permanent in nature or result in death, dismemberment, loss of a fetus, displaced fracture, significant disfigurement or scarring.

The reform law also created the Office of the Insurance Fraud Prosecutor. The Prosecutor, who works within the New Jersey Attorney General's Office, is charged with investigating and prosecuting suspected insurance fraud.

For more information on what the OIFP is doing, visit their web site at http://www.njinsurancefraud.org .

This provision preserves your right to choose the auto body shop or repair facility of your choice. However, if the auto body shop or repair facility you choose does not have a prior arrangement with your insurance company, or if the shop is not a member of the company's network of shops, your insurer may require the shop to repair your vehicle under the same terms and conditions their network shops would. In such instances, the shop repairing your car would need you to sign a notification that your manufacturer or dealer warranty or lease agreement may be jeopardized.

AICRA reform law requires insurance companies to reduce rates for various policy coverages. The overall result is a premium reduction of approximately 15% for a "typical" policy. However, because the policy coverage selections each driver makes varies widely, the actual amount of a person's rate reduction depended upon a number of factors, including the types and amounts of coverage chosen.

In March 1999, insurance companies filed new auto insurance rates that reduced the rates they charge by over $700 million as required by the AICRA legislation crafted by Governor Christie Whitman and the state Legislature.

Currently, state law places a cap on the auto insurance premiums that can be charged in certain areas of the state, even though these areas generate more accidents, claims and lawsuits than other parts of New Jersey. The result is that auto insurance premiums in these capped areas are inadequate to cover the losses that are generated there and force other New Jersey drivers to subsidize the rates. The new reform law mandates a state-appointed commission review and revises these geographic territories for the first time since about 1940.

Prior to the passage of AICRA, the state Legislature eliminated mandatory insurance surcharges and moved New Jersey to a new and more responsible system of charging automobile insurance premiums - tiered rating. The new tiered rating system is designed to identify and provide the lowest premium to low risk-drivers, rather than simply penalizing motorists for accidents and DMV violations. Insurers consider a number of risk characteristics, including driving record, years of experience, vehicle type and coverage limits when determining a driver's tier placement.

Companies have developed a variety of tiered programs for the different types of drivers and vehicles they insure. This makes it more important than ever for consumers to shop around because tier systems and rates can vary considerably.