New Jersey Banking and Insurance Commissioner Karen L. Suter shared the proposed draft standards with the Territorial Rating Plan Advisory Commission. The 50-year-old rating map used by automobile insurers will be redrawn based upon standards that the Department will adopt.
“The current territorial map was created more than 50 years ago, and since that time there have been significant changes,” Suter said. “Many formerly rural or suburban areas have become more populated. Our auto rating territories need to reflect those changes more fairly in determining auto insurance rates and premiums.”
Redrawing the map is required by the Automobile Insurance Cost Reduction Act of 1998. The new map, which will more accurately reflect the demographic and traffic pattern changes that have occurred since the 1950s, is one of the final pieces of the recent sweeping reforms to New Jersey’s automobile insurance system. Under AICRA, the Legislature recognized the need to revise the territorial boundaries. It created the 15-member Territorial Rating Plan Advisory Commission to develop a new territory map, and also required the Department to establish standards to be used for the development of new territorial maps.
The Legislature intended that the development of new territorial maps should include consideration of a number of factors – not just actuarial data and loss experience. To be included are the facts that New Jersey is relatively small in size, is the most densely populated state, has a mobile population that relies heavily on automobiles, and requires that all motorists purchase automobile insurance.
“The law tells us why the territories should be developed, but it also directs us to balance an industry’s loss experience with the need for fairness and affordability,” Commissioner Suter said. “In other words, we cannot adopt standards that solely rely on actuarial science. As the Legislature intended, we must consider other public policy concerns as well.”
The Act requires that the standards include the following:
· territories must be comprised of cities or towns that are contiguous;
· the new system must recognize the qualitative similarities and differences in driving environments within each territory, including traffic and population densities;
· territories must contain enough exposures for statistically credible experience.
· the new system must account for the impact of overlapping traffic patterns on exposure to loss, including interterritory and intraterritory trips, and
· no matter how the map is redrawn, premiums will remain revenue neutral, which means total premiums collected by a company will remain the same.
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