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Reforms have been enacted which eliminate auto insurance company surcharges for motor vehicle violations and accidents. Instead of relying on just two rating levels (surcharged and non-surcharged), insurance companies use tier systems to determine rates. Tier rating systems take the "complete picture" into account to identify a low risk driver rather than simply penalizing drivers for accidents and DMV violations. The result is that while accidents and violations can still impact auto insurance premiums, other risk characteristics receive equal or greater weight in determining the premium. The move to tier rating is the result of legislation passed in June 1997 that eliminated "insurance eligibility surcharges." Created in 1990 as part of then-Governor Jim Florio's Fair Auto Insurance Reform Act (FAIRA), insurance companies were required to assess surcharges (separate and independent of points and surcharges issued by the New Jersey Division of Motor Vehicles) for specific motor vehicle violations and at-fault accidents. The result was that even drivers with good long-term driving records were subjected to heavy penalties in the form of "insurance eligibility surcharges." It was not uncommon for some low-risk drivers to pay a $1,000 a year in surcharges for three years. As more and more drivers were required to pay surcharges, New Jersey consumers demanded a change in the way auto insurance premiums were set. In June 1997, legislation eliminated eligibility surcharges and moved New Jersey to a new and more responsible system of charging automobile insurance premiums -- tier rating. Insurers examined the claim history, driving records and risk characteristics of all their policyholders to develop their particular rating levels or "tiers" for the many different types of drivers and vehicles they insure. The outcome is that auto insurance companies now have a greatly expanded range of premiums that they can offer to customers. This makes it more important than ever for consumers to shop around because tier systems and rates can vary considerably.
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