AAI Characterizes NAIC Report on N.Y., N.J. Auto Costs ‘Misleading’

July 31, 2002

The National Association of Insurance Commissioners’ (NAIC) state rankings of auto insurance premiums, released last week, is “nothing more than an exercise in irrelevance and a misleading barometer of who pays how much for car insurance in New York and New Jersey,” according to the Alliance of American Insurers.

“The debate over whether New York or New Jersey drivers spend more for their car insurance is a manufactured debate that ignores the realities of insurance economics and wastes valuable media space and time that could be put to better purposes,” John Cucci, vice president for the Alliance of American Insurers’ Northeast Region, said.

“The NAIC report simply takes premium and divides it by the number of insured cars to come up with a so-called average. The fact of the matter is that drivers do not pay average premiums, and there are no ‘average drivers.’ Drivers pay a premium for car insurance based on accident frequency of the rating territory, where the person garages the car, age, driving record, type of vehicle driven and use of the car insured. The NAIC method, in effect, presupposes a one-territory state where everybody pays the same price regardless of accident involvement or driving history. Try selling that to the people of New York or New Jersey,” Cucci added.

“Auto insurance premiums vary throughout New York State. People in the five boroughs and Buffalo pay more for their coverage than people in Plattsburg, Glens Falls or the Southern Tier. The suburbs pay less than the city, rural areas less than suburban, and so on. Also, drivers in rural areas of New Jersey pay less than drivers in urban areas of the state and less than drivers in some parts of New York, depending on the accident statistics for a specific rating territory.

“This average premium methodology is reminiscent of the anecdote about the actuary who drowned in the river whose average depth was six inches. It appears to us that the NAIC actuaries who assembled these premium rankings belong to the ‘six-inch-deep’ school of thought.”

Cucci also noted that the NAIC rankings do not take into account differences in coverage throughout the United States. New York has a very generous no-fault law with generous coverage, both mandatory and optional, as does New Jersey. So by comparing New York and New Jersey with rural and less industrialized areas having different and less comprehensive coverage also produces no reliable cost comparisons.

“The NAIC report for the first time in several years acknowledges this discrepancy,” he noted. “Moreover, by focusing on New York’s liability insurance costs, the NAIC report deflects attention from the real problem: no-fault medical fraud that is costing New York drivers $2 million a day in unnecessary auto insurance costs.

“The NAIC data also ignore New Jersey’s 1998 auto insurance reforms and concentrate only on the so-called ‘rate rollback.’ More accurately, the New Jersey reforms centered on mandated cost reductions tied to mandated changes in the no-fault law.”

New Jersey’s new law promised a 15 percent savings on a revision of the state’s lawsuit threshold to limit lawsuits for pain and suffering and several other deep cost-cutting reforms. Under the new law, the requirement for pain and suffering lawsuits was changed so that injuries must be to a body part or organ, not just tissue, and must be permanent.

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