New Jersey officials for the first time in 50 years have approved a new territory map for setting prices on auto insurance risks.

One insurance industry representative said a unique premium redistribution mechanism that accompanies the map is causing underwriters concern.

Department of Banking and Insurance Commissioner Steven M. Goldman approved the new map and rating system late last week.

The new map and rating system was mandated by the state legislature in 1998 under the Automobile Insurance Cost Reduction Act. Prior to that act, New Jersey was considered a pariah among auto insurers because of what many considered onerous regulation.

The new map and accompanying rating schedule does away with a cap of 135 percent in variation of rates but complies with the mandate that rates in new territories "not be 'significantly disproportionate' to those in effect in 1998," according to the proposal submitted by the department in early 2007.

The map was the result of years of work by the Automobile Insurance Territorial Rating Plan Advisory Commission.

The map and rating system includes the Territorial Rating Equalization Exchange (TREE) plan. The purpose of the TREE is to make insurance underwriting fair for all insurers no matter where they write and to give all automobile policyholders in New Jersey a broad range of companies to choose from.

According to the department's proposal, the intention of the formula is the redistribution of premium.

As explained in an e-mail by Ryan Furmick, commercial auto New Jersey/Pennsylvania manager for Progressive Insurance, TREE would redistribute premium of those who write a disproportionate amount of business in previously non-capped rural and suburban territories to insurers who write more business in previously capped, urban territories.

Marshall McKnight, a spokesman for the department, said that the department's view on the distribution is that it is not based on rural versus urban territories, but on low loss ratio territories versus high loss ratio territories.

The redistribution of the premium will be reviewed by the TREE board, which is yet to be formed, said Mr. McKnight.

The board will consist of 11 members: eight from the industry, two producers and one public member. The board will review charges, determine areas and companies to receive the funds, and decide what the distribution will be.

Mr. McKnight said the new rating map will not result in increased premiums for policyholders. Instead, it reflects the current reality of the state's demographic makeup.

Under the rules, rating organizations, such as the Insurance Services Office Inc. will have 60 days to file their own map and recommendations. Companies will have 180 days to file their own maps based on their own data. The maps must be approved by the department before their use, said Mr. McKnight.

However, there is concern over TREE among some in the industry.

Richard Stokes, regional manager and counsel for the Property Casualty Insurers Association of America in Trenton, N.J., said while underwriters are "pleased that the department has finally moved on the issue," a majority of members have reservations about the department's plan to redistribute premium, while others feel it would be a benefit.

He said PCI is currently analyzing that portion of the department's order. He emphasized that it is premature to say what the association's stance will be on the issue. Mr. Stokes said he believes that New Jersey may be the first state in the nation to come up with such a plan.

(This story was updated on Jan. 4 at 3:00 p.m. EST)

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N.J. Territory Map Update Brings Industry Concern

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