N.J. Prepares to Change Auto Rate Territories

April 25, 2005

New Jersey officials claim that caps removed from auto insurance rates in cities will not automatically increase costs for drivers and could help build a more competitive auto insurance market.

Advocates for consumers, however, did not buy the state’s stand.

John Dyke, chairman of the NJ Auto Agents Alliance Inc., which represents agents and consumers in the Garden State, said he expects drivers in urban centers will eventually be hit with steep increases.

“The caps were put in place 20 years ago and they were put in place for a reason,” said Dyke, also an auto insurance agent. “Rates were soaring in the urban areas.”

The caps, signed into law in 1998, prohibit companies from charging more than 35 percent above an insurer’s statewide average.

Auto insurance rates typically are higher in cities because they are more crowded, have more traffic and more accident claims are filed, officials said.

The first step toward having the caps dropped began last month when the state adopted new regulations that became effective last week. The next move is for the governor to appoint a commission that will hold public meetings as it draws up a new map establishing regions that will be used as guidelines for insurers to set rates. The state’s existing map is more than 50 years old.

Once the new map is created, the department must give its approval before it can be used. Auto insurers could use their own rating maps, but those also need department approval. After the process is done, which is expected to take at least a year, the caps will be lifted.

“Nobody is going to find themselves hung out there until the process is complete,” said Donald Bryan, acting commissioner of the Banking and Insurance Department. “They (the rates) cannot be, and should not be, significantly disproportionate to what they are now.”

The auto insurance market also is different than it was years ago, when urban drivers were hard-pressed to find choices among the state’s auto insurers, Bryan said. More insurers have set up operations in the state and others have come back, giving consumers more options.

“Removal of the caps is good for the market and a healthy market is good for everybody,” Bryan said. He added that he does not want the removal of the auto insurance rate caps in cities to panic people.

Lisa Thorton, special deputy commissioner for the department, stressed that while the process for removing insurance rate caps continues, competition in the industry is burgeoning. “Competition is going to bring down rates no matter where you live,” Thorton said. “You can’t say everybody in urban areas, their rates are going to go up.”

Drivers in urban areas also might end up paying less because of the change, Thorton said.

But Dyke, of the NJ Auto Agents Alliance, said auto insurance companies do not compete the way the retail industry does. For example, a store may want to sell to everyone, but auto insurers compete for the same 25 percent of suburban drivers who have clean driving records and are considered low risk, he said.

“Once the caps are removed, urban rates are going to go through the roof,” Dyke said. The change, however, may not happen right away, he added.

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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