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What your coverage means

UNDERSTANDING NEW JERSEY’S NEW AUTO INSURANCE SYSTEM

The Automobile Insurance Cost Reduction Act of 1998 (AICRA) is the latest legislation to address problems associated with the high cost of automobile insurance in the Garden State. A number of dramatic changes will occur to the state’s auto insurance system as a result of this new law that all drivers should know and understand. In addition to allowing consumers more choice in selecting coverage limits, significant measures will be implemented to reduce insurance fraud and abuse.

The cost reduction measures are aimed at controlling the cost of what auto insurance pays for – medical treatment, lawsuits and vehicle repairs. Each year insurers pay over $2 billion in legal, hospital and doctor bills. By eliminating inappropriate medical treatment, frivolous lawsuits and other types of fraud, the legislation requires that automobile insurance rates be reduced by approximately $700 million or an overall average of 15 percent.

Consumers who purchase new automobile insurance policies or whose policies are renewed on or after March 22, 1999 will benefit from the implementation of the various reforms and the mandatory rate reduction.

The following is a brief summary of the changes in the law that could affect you as a New Jersey motorist.

Consumer Choice

You will have more choices under the new law. These choices give you the option to choose coverage limits that best fit your individual needs at the time you buy or renew your policy. The new law will let you choose either a “standard” auto insurance policy or a new “basic” type of policy.

Basic Policy

The new basic policy allows vehicle owners to purchase lower amounts of certain coverage’s than New Jersey law previously required.

A basic policy offers $15,000 in personal injury protection coverage and includes up to $250,000 of medical benefits coverage for catastrophic-type injuries, $5,000 property damage liability and an option to purchase $10,000 of bodily injury liability coverage. If you purchase a basic policy, you can not purchase uninsured/underinsured motorist coverage. Companies can, at their option, also offer to sell collision and comprehensive coverages with this type of policy.

Standard Policy

A standard auto insurance policy offers motorists a variety of coverage options; State law requires you to purchase certain minimum limits of three coverages:

  • Personal Injury Protection – PIP pays for injuries to you and your passengers, no matter who is at fault in an accident. Insurance companies must offer you up to $250,000 of coverage.
  • Liability Coverages – Bodily Injury Liability pays for injuries you cause to others in an accident. Under a standard policy the minimum coverage required is $15,000 for injuries to one person and $30,000 for all injuries in an accident. Property Damage Liability pays for damage you cause to others’ property from an accident. The minimum required coverage is $5,000.
  • Uninsured/Underinsured Motorist – These coverages protect you against damages and injuries caused by drivers who are uninsured or inadequately insured. These coverages are not available under a basic policy. Minimum limits are the same as for the liability coverages and the basic deductible is $500 for property damage.
  • Optional Coverages — Collision coverage pays to repair your car after an accident, no matter who is at fault.Comprehensive coverage pays for auto theft, glass breakage and damage from vandalism, fire, flood and flying rocks and debris.

Options on PIP Limits

Consumers will also have new choices with regard to their personal injury protection or PIP benefits coverage. New Jersey law previously mandated that all policyholders purchase $250,000 of PIP benefits. PIP pays for injuries to you and your passengers, no matter who is at fault in an accident.

Under the AICRA reform law, individuals purchasing a ‘standard’ policy have the option of choosing various levels of coverage, $250,000, $150,000, $75,000, $50,000 or $15,000. All the options include catastrophic-type injury coverage of up to $250,000. If you do not choose among these options, you will automatically be given the standard $250,000 of coverage.

The reform law also encouraged insurance companies to develop various deductible, co-payment and pre-certification plans to combat fraud and abuse of auto insurance medical benefits. Consumers should carefully review these plans.

Named Excluded Driver Provision

Another choice that insurance companies must offer is the option of purchasing this provision.

If there are vehicles on your policy that certain driver(s) living in your household do not drive, you can “exclude” those drivers from having coverage on those vehicles. If the “named excluded driver” operates the vehicle physical damage coverage benefits (collision or comprehensive) would be not be available. The vehicle would continue to be covered under the liability and personal injury protection coverages regardless of who drives the car.

 

Cost Containment & Anti-Fraud Measures

The reform law also includes several initiatives to cut costs and combat fraud and abuse.

New Definitions in Your Policy

The reform law requires insurers to include new definitions for the terms medical expense, medical supplies, economic loss, health care provider and medical necessity in their policies. This is meant to combat unnecessary treatment and unscrupulous medical providers by clarifying what these terms mean and the insurance benefits they cover.

Medical Treatment Protocols and Diagnostic Test

In an effort to combat tens of millions of dollars of fraud and abuse in the state’s auto insurance system, the reform law required the New Jersey Department of Banking & Insurance to establish guidelines for the standard treatment of injuries sustained in automobile accidents.

After months of research and dialogue with state boards that license various medical professionals, the Department approved a set of medical treatment guidelines and a list of valid diagnostic tests. The new rules ensure that injured auto accident victims receive prompt medical treatment from responsible medical professionals while adding reasonable controls to prevent widespread fraud and abuse.

Under these guidelines, it remains the policyholder’s right to choose their own physician.

New PIP Dispute Resolution System

Prior to the reform law, disputes over excessive or inappropriate medical treatment were resolved by panels of lawyers — not doctors — and a typical claim could take 12 to 18 months to be processed. Under the new arbitration system, independent medical review boards of doctors and full-time professional arbitrators will review and settle disputes regarding medical benefits.

New Threshold to Limit Lawsuits

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.

Office of Insurance Fraud Prosecutor

The reform law 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.

Body Shop Repair Provision

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 IFA, we may require the shop to repair your vehicle under the same terms and conditions as their network shops. In this case, the shop chosen by you would be required to sign a notification that your manufacturer or dealer warranty or lease agreement may be jeopardized.

Mandated Rate Reduction

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 your rate reduction will depend upon a number of factors, including the types and amounts of coverage you choose.

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.

 

Territorial Rating Commission: Rating Territories to be Revised

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 in over 50 years. Implementation of these revisions should begin after January 1, 2000.

 

Eliminating Surcharges

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.

 

Why is New Jersey Car Insurance So Expensive?

We are all aware that automobile insurance in New Jersey is very costly. On average, we pay the highest premiums in the nation. Why do New Jersey drivers have such high insurance costs? Certain characteristics of our state drive up the cost of auto insurance in New Jersey and contribute to the rates you pay:

  • Demographics – With its 1,065 people per square mile, New Jersey is the most densely populated state in the nation. As a result, we have more registered motor vehicles per square mile (782) than any other state. Add to this New Jersey’s more than 34,000 miles of roads and highways and it’s not surprising that there were more than 250,000 reported accidents in 1998.
  • Lawsuits – When you consider that more than 164,000 “pain and suffering” lawsuits were filed in the last three years in New Jersey, you can begin to understand the enormous costs incurred by insurance companies to defend policyholders against these suits and to settle these types of claims. New Jersey insurers have paid more than $12 billion in the last eight years to resolve these types of lawsuits.
  • Medical Costs – The rising cost of medical care continues to be a major contributor to the cost of auto insurance in New Jersey. Insurance companies have paid over $3.2 billion in the last four years for medical claims resulting from auto accidents.
  • Insurance Fraud and Abuse – The Washington D.C.-based Coalition Against Insurance Fraud estimates that auto insurance fraud and abuse annually costs each household in New Jersey $297.50 or about $800 million a year.
  • Auto Theft – Auto theft in New Jersey continues to be a major cost factor. While the number of auto thefts has decreased in recent years, the cost of replacing stolen cars and parts continues to increase.
  • Uninsured Drivers – There are an estimated 400,000 to 600,000 uninsured drivers on New Jersey’s roads and highways. When an uninsured driver causes an accident, he or she may be fined or penalized for driving without insurance, but it’s the insured driver’s insurance company that pays for the damage.
  • High Cost of Living – New Jersey’s cost of living makes auto repairs and medical treatment more expensive than in other states.

 

How you can control your own auto insurance costs!

All drivers are concerned about the high cost of auto insurance. The following are some tips on how you can control your own costs and spend your premium dollar wisely:

  • Raise Your Deductibles – A deductible is the amount of money you contribute before the insurance company begins to pay. The higher you set your deductibles, the lower your insurance premium will be.
  • Change Your PIP Benefit Options – You may have your auto insurance company provide primary PIP benefits or you may choose to have your health insurance provider be the primary payer for auto accident-related medical bills. Check first to see if your health plan offers primary coverage for auto accident injuries before selecting this option.
  • Choose the new Limitation on Lawsuit Option – Select this threshold instead of the zero dollar threshold option. Depending on the insurer, policyholders can save as much as 75% on their bodily injury and property damage liability coverage premium. 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 or significant disfigurement or scarring. Selecting this threshold does not diminish your medical benefits coverage.
  • Investigate Discounts – Policyholders are often eligible for a number of discounts including, multicar, good student, defensive driving, and discounts for safety features and anti-theft devices
  • Take a State-Approved Defensive Driving Course – Motorists who successfully complete an approved motor vehicle defensive driving course may receive discounts on their auto insurance. For a list of the approved courses call the Department of banking & insurance at 1-800 446-SHOP.
  • Buy A Safe Car – Before you buy a car, find out how expensive it will be to insure. The prices can vary significantly depending on the make and model and whether the car contains safety features.
  • Drive Safely – One of the best ways to keep your insurance premiums down is to maintain a good driving record