Implementation of a new regulation to prevent spikes in New Jersey urban area auto insurance rates is progressing, but still must clear a few hurdles, including a legal challenge from several insurance associations, the state's insurance commissioner said.

The coming rule known as the Territorial Rating Equalization Exchange (TREE) was first mentioned in January 2007 as a planned replacement for the state's urban enterprise zones (UEZ).

Under the UEZ, rates in urban areas of the state cannot be more than 35 percent above the average statewide rate. The UEZ framework is scheduled to sunset in April 2009.

Under TREE, insurers writing auto insurance in the state will make payments into the exchange, and those payments will be used to pay subsidies to companies that write insurance in the state's urban zones. Along with TREE, the state planned to develop new territory rating maps that accurately reflect population shifts.

New Jersey Insurance Commissioner Stephen Goldman said that it will still be a while before TREE is in effect, but that there has been significant progress. The regulation authorizing TREE is in effect, he said, and the exchange's executive board has met recently for the first time.

Additionally, the deadline for companies to file their rating plans for territory maps passed last week.

Richard Stokes, regional manager and counsel for the Property Casualty Insurers Association of America (PCI), said that the department issued its revised territory map, and that companies had to file their plans with the department to use either the department's common map, the ISO map, or their own rating map.

Mr. Stokes noted that territories had not been changed in New Jersey for over 60 years.

Mr. Goldman said there is also a pending lawsuit filed by several insurance associations regarding TREE.

Mr. Stokes explained that PCI, the American Insurance Association (AIA), the Insurance Council of New Jersey, and the National Association of Mutual Insurance Companies (NAMIC) are all involved in the lawsuit. Mr. Stokes said it was filed March 19 as "more of a logistical issue than anything else."

He noted that there are certain timeframes established for challenging regulations, and the associations decided to voice their concerns about the regulation before the deadline passed. But, at this point the legal action is merely pending and no briefs have been filed in the case.

Mr. Stokes said he is concerned that the TREE regulation may contradict insurance reform laws passed in New Jersey that call for a more open and competitive insurance market.

He said that, in general, markets are more competitive without government controls, and instituting TREE may stifle competition rather than promote it.

However, he said that if TREE is handled properly, "this may be a lot about nothing." Just in case, though, Mr. Stokes said, "We decided as a general principle to just comply with the timeframe to file a concern about the regulation." He said he was unsure how TREE or the litigation process will progress.

Special Reports /

N.J. Auto Territory Rating Change Nears Amid Legal Challenge

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