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

Proposed changes to New Jersey'spersonal injury protection (PIP) coverage would benefit insurersfrom a credit perspective as reforms would reduce legal expensesand clarify medical reimbursement for specific injury types,according to Moody's.

Earlier this month, the New Jersey Department of Banking andInsurance (DOBI) said it is looking to revise PIP regulations less than two years afterprior reforms made their way out of legal wrangling. DOBI says itis considering about 3,000 additional codes to the current feeschedule. The last fee schedule, used to reimburse medicalproviders after treating patients from auto accidents, was adoptedin 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 wasnot a panacea. There were a few bad actors takingadvantage—avoiding codes and using procedures that weren'tcoded."

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

In its Weekly Credit Outlook, Moody's says, "Profitability ofPIP coverage in New Jersey has been under pressure, with insurersreporting a loss ratio of 84 percent for no-fault auto insurance,compared with the national average of 66 percent for all autoinsurance coverage combined" which includes physical damage andliability.

Other states with no-fault systems have seen PIP profitabilityunder pressure as well, Moody's notes. "The factors that havecaused problems for insurers operating in New Jersey are similar toother states operating under a no-fault system, including New Yorkand Florida." Citing Insurance Research Council statistics, Moody'ssays as many as 30 percent of PIP claims in Florida and 14 percentin New York involve either overbilling or excessive utilization ofmedical services."

For New Jersey, Moody's says, "No-fault insurance has for sometime now been a driver of auto insurance rate increases. [DOBI]noted that PIP coverage accounted for 97 percent of rate increaserequests in 2010."

DOBI expects the reforms to address rising claim costs andrates, but Moody's notes that high medical inflation will remain anissue going forward, and "we do not expect these reforms to addressit."