Moody’s: N.J. Proposed PIP Reforms Positive for Insurers

NU Online News Service, Aug. 16, 1:18 p.m. EDT

Top No-Fault Auto WritersProposed changes to New Jersey’s personal injury protection (PIP) coverage would benefit insurers from a credit perspective as reforms would reduce legal expenses and clarify medical reimbursement for specific injury types, according to Moody’s.

Earlier this month, the New Jersey Department of Banking and Insurance (DOBI) said it is looking to revise PIP regulations less than two years after prior reforms made their way out of legal wrangling. DOBI says it is considering about 3,000 additional codes to the current fee schedule. The last fee schedule, used to reimburse medical providers after treating patients from auto accidents, was adopted in August 2007 before getting tied up in a legal battle.

Changes are needed “to close loopholes,” says Marshall McKnight, spokesman for DOBI, who adds, “We knew the last fee schedule was not a panacea. There were a few bad actors taking advantage—avoiding codes and using procedures that weren’t coded.”

Proposed PIP reforms would also change the arbitration process to reduce frivolous filings, McKnight says.

In its Weekly Credit Outlook, Moody’s says, “Profitability of PIP coverage in New Jersey has been under pressure, with insurers reporting a loss ratio of 84 percent for no-fault auto insurance, compared with the national average of 66 percent for all auto insurance coverage combined” which includes physical damage and liability.

Other states with no-fault systems have seen PIP profitability under pressure as well, Moody’s notes. “The factors that have caused problems for insurers operating in New Jersey are similar to other states operating under a no-fault system, including New York and Florida.” Citing Insurance Research Council statistics, Moody’s says as many as 30 percent of PIP claims in Florida and 14 percent in New York involve either overbilling or excessive utilization of medical services.”

For New Jersey, Moody’s says, “No-fault insurance has for some time now been a driver of auto insurance rate increases. [DOBI] noted that PIP coverage accounted for 97 percent of rate increase requests in 2010.”

DOBI expects the reforms to address rising claim costs and rates, but Moody’s notes that high medical inflation will remain an issue going forward, and “we do not expect these reforms to address it.”

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