On Thursday, there was a big article in the New York Times detailing how New Jersey drivers are saving a lot of money under the auto insurance reforms enacted in 2003 under then Governor James McGreevey (yes, that Governor). I was out of state all week and did not get a chance to blog about this, but it looks like no one else caught the article aside from Jon Keller, who asked "Why Can't We Be Like New Jersey?", quite possibly the first time those words have ever been put together in that order. The article is particularly relevant here in Massachusetts because since New Jersey enacted its reforms to the auto insurance industry, we are now the most heavily regulated state in the union. Opponents of insurance reform had previously used the example of New Jersey as a cautionary tale, saying that NJ drivers now had to pay more under their new system. The Times, however, says otherwise. From the article (emphasis added):
Insurance regulators say more than 75 percent of New Jersey's drivers are now paying less for auto insurance and that further reductions are expected.Of course, what the article unhelpfully fails to point out is exactly what sort of reforms New Jersey enacted to get to this point. Yes, they loosened restrictions, but that could mean anything. Finding this information turned out to be more difficult than I expected, but you can find some information here and here.
Auto insurance prices have been declining around the country, as fewer accidents have been reported and big inroads have been made against fraudulent auto insurance claims. But nowhere are prices falling as sharply as in New Jersey. And insurance experts say that the easing of regulation in New Jersey has been by far the most important factor.
Some of New Jersey's worst drivers are paying more than before and some drivers have experienced little, if any, change in their premium costs. But agents around the state say costs have fallen for most of their customers and many are paying as much as 30 percent to 40 percent less.
Even some drivers with poor records are saving money. Over all, state regulators say, drivers have saved more than $500 million since the regulatory controls were relaxed.
One important thing they did was to try to reduce the number of uninsured drivers by having the state offer low-cost plans -- the most basic of which costs 'a dollar a day' -- under their assigned risk program. This has kept costs down for drivers that the insurance companies might be wary of covering. Eligibility for these low-cost programs is the same as for Medicaid.
In addition, the state is cracking down on fraud to cut costs for insurers. Here in Massachusetts, we've started to do this and some places, notably Lawrence, have had a lot of success in exposing insurance fraud. The New Jersey laws force fraudsters into the more expensive high-risk pool when exposed, revokes medical licenses for providers who commit fraud, and offers rewards of up to $25,000 for reporting fraud.
The New Jersey law also provides for some consumer protections. Under the law, insurance agents are apparently required to give drivers at least three coverage scenarios with different prices, with the intent of increasing the choices available to consumers. Carriers are also required to notify policyholders when they ask for a rate increase, and they are not allowed to cancel coverage for a customer whose bill is mailed on time but received by the company a few days late.
Here in Massachusetts, I had originally dismissed the group pushing for auto insurance reform in Massachusetts because they were fronted not by consumer advocates, but by large insurance companies looking to get into the Massachusetts market. I also did not appreciate their misleading ads, which seemed to imply that bad drivers are paying less than good drivers in Massachusetts (this is not the case). Then, of course, came the group opposing these reforms, which was headed up by the state's current insurers -- most notably Commerce Insurance -- who obviously do not relish the thought of large insurance companies coming into the commonwealth and forcing more competition. Interestingly enough, this group's "Auto Insurance Truth" website still has the message "Don't make the same mistake that New Jersey did" in its header. Of course, they don't tell you that this mistake saved New Jersey drivers more than 500 million dollars.
I will admit that we still don't know what the long-term effects of New Jersey's insurance reform will be. It's not impossible that their prices will rise as sharply as they've declined at some point. Still, the early returns look very promising, and perhaps we can take advantage of their experience and start taking measures that will save drivers some money here in Massachusetts.
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