Prof. Urges N.J. Auto Insurance Deregulation

By Daniel Hays

NU Online News Service, March 21, 4:42 p.m. EST?A state university economics professor, after a detailed study of New Jersey's "pathologic" regulation of auto insurance, has called for immediate adoption of flex rating and eventual deregulation of the system.

However, John D. Worrall, chairman of the Rutgers University Economics Department in Camden, N.J., said today that he would not be in favor of removing all controls. "I'm in favor of solvency regulations," he explained. "Not everyone agrees with total deregulation."

Indeed, one group--the Newark, N.J.-based Coalition for Auto Insurance Competition--said today they thought "creating new laws and regulations that spur competition and consumer choice is the answer to New Jersey's auto insurance mess, not deregulation."

"We need a regulatory system that promotes competition, encourages companies to sell auto insurance in New Jersey, and creates a stable market that offers more choices for consumers,'' said John Friedman, who chairs the newly-formed coalition. Mr. Friedman is assistant vice president and senior legislative counsel for USAA, based in San Antonio, Texas.

Mr. Worrall made his case for regulatory reform in a 41-page report released this week, entitled "A Roadmap To Market Stability For the New Jersey Private Passenger Automobile Insurance Market."

He noted that New Jersey adopted a Automobile Insurance Cost Reduction Act in 1998, but has still not promulgated its provisions for dental and hospital fee schedules, a new territorial rating map, and new caps, and only partially adopted a medical fee schedule, while at the same time mandating a 15 percent rate rollback. He urged immediate activation of all the act's provisions.

He charged that the state has a "dysfunctional regulatory system that does not permit companies to adjust prices when economic conditions change."

Problems with the system, he noted, include average injury costs at twice the national average and "one-third higher than the second-most expensive state (Delaware), and 50 percent higher than the third-most expensive state (New York)."

He found that rate decisions "virtually always result in denial or partial approvals," while a Joint Underwriting Association set up to cover drivers unwanted by the voluntary market had run up a $3 billion deficit--half of which was passed back to insurers, with the rest going to drivers through a surcharge.

Mr. Worrall said that adoption of rates without prior approval should be allowed within a band that would allow rates to change up to 10 percent. This change, he said, should come with the ability for insurers to select their own risks.

The professor said the law that allows New Jersey to require insurers that leave the private passenger auto market to surrender their licenses to write other lines "is dumb economics, bad public policy, and ill-advised law. It should be scrapped as quickly as possible."

In support of deregulation, he noted that the state does not regulate commercial auto insurance and "the market is healthy." A blue ribbon panel should begin drafting transition legislation, he said.

According to Mr. Worrall's report, New Jersey has 67 firms selling auto insurance, compared with 129 in Illinois, which has deregulated.

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Prof. Urges N.J. Auto Insurance Deregulation

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