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 Auto Rates Are a Campaign Issue Again as Insurers Prepare to Leave
Originally appeared in the New York Times on October 22, 2001
TRENTON, Oct. 21 - Four years ago, James E. McGreevey nearly won the governorship of New Jersey with a campaign that harnessed voter anger over high automobile insurance rates. This time, the rate debate has been muted at best - in part because Mr. McGreevey has chosen to make his Republican opponent, Bret D. Schundler, the main issue, and in part because the Sept. 11 attacks have voters worrying about larger questions of safety and survival.
Yet in a state with some of the highest auto insurance premiums in the country, the issue is never far in the background. And the problems have loomed even larger this year as several big insurers announced they would stop doing business in the state.
The companies, including State Farm and A.I.G., which are among the state's largest auto insurers, have said that efforts to control rates and profits make it impossible to do business here. They are leaving the market even though the average annual premium of $955 paid by New Jerseyans is well above the national average of $700, according to the Consumer Federation of America.
Mr. Schundler cites that fact as evidence that the system badly needs change. And characteristically, his positions are more sharply drawn than Mr. McGreevey's.
Mr. Schundler's principal proposal is to give drivers the option of waiving the right to sue for nonfinancial costs, mainly for pain and suffering, in return for immunity from such suits against themselves.
"The Rand Institute found that having the right to sue drives up premiums by 20 to 30 percent," said Bill Guhl, Mr. Schundler's spokesman. "Giving up the option would still leave a driver free to sue for actual losses, but not for a penalty award."
In a statement on Oct. 8, Mr. McGreevey, the mayor of Woodbridge, attributed the high insurance costs to eight years of Republican control in Trenton. He said that New Jersey deserved a governor who was serious about lowering costs for consumers, who would stand up to the insurance industry and would crack down on fraud and abuses.
The Rand study (a summary is on the Web at www.Rand.org) reported that such an option - known as "absolute no-fault" - if chosen by half of all drivers, would reduce the average premium in New Jersey by 36 percent, and premiums for the poor by more than half.
Mr. Schundler's idea is, not surprisingly, sharply opposed by the New Jersey branch of the American Trial Lawyers Association, whose members, as Mr. Schundler rarely fails to point out, are among Mr. McGreevey's most generous campaign contributors.
"It will be mostly an option for those who can barely afford insurance, and that's the problem with it," said Richard Wildstein, chairman of the association's auto insurance reparations committee. "Anyone who has assets would never expose their families or themselves to this. It would be like going around with a target on their backs saying, `Hit me.' "
Robert Hunter, the former Texas insurance commissioner and now director of insurance for the Consumer Federation of America, disputed Mr. Wildstein's assertion that only a few people would choose the option, noting that more than two-thirds of drivers had chosen it in states where it was available. But he agrees with Mr. Wildstein that it is a bad idea.
"The Republican idea is the insurance industry idea," Mr. Hunter said, "and they've been pushing it in every state in the country."
Besides promising zero tolerance for fraud, including prison sentences for offenders, Mr. McGreevey said that he would crack down on uninsured drivers by installing in each police car access to a database of motorists who violate New Jersey's mandatory coverage law and that he would create policies that favored drivers with clean records.
Mr. Hunter said New Jersey was already a leader in combating fraud, and added, "I don't know how much you can get out of a stone."
Mr. Schundler, in contrast, argues for working with the insurance industry to eliminate regulations that have prompted companies to leave the state. New Jersey imposes a 6 percent limit on profits and requires refunds to policyholders when that limit is exceeded, for example, and insurers complain that reporting requirements make even the smallest policy changes burdensome.
The state also controls entry to the market and corporate departures, so policyholders with companies that have announced their intention to leave the state will have several years to look for new coverage.
"Of course we have to keep in place some safeguards," Mr. Guhl said, "but we should be working toward making New Jersey competitive, so we stop losing companies. If we can find out what regulations are driving companies out of state, you can begin to make New Jersey a better place for them to do business in."
Illinois has been operating a largely deregulated auto insurance market for many years, and South Carolina recently followed suit, but Mr. Hunter of the Consumer Federation maintained that there were few good lessons in either example for New Jersey. Traffic density, a measure of the number of cars and the number of miles driven in a given time, is much lower in Illinois than in New Jersey or California, he said, but the Illinois rates are well above the national average.
South Carolina's more recent deregulation did what Mr. Schundler says he wants to do: attract more insurers and increase competition. But the new companies tended to be high-premium ones that could not compete before, and Mr. Hunter maintains that the state's claim of having lower premiums as a result of deregulation is statistically illusory.
California's traffic density index is 2.4, compared with 2.5 in New Jersey, the country's highest, Mr. Hunter said, yet California's average rates are closer to the national average of $700 a year per vehicle. California has not deregulated, he said, but instead relies on an underwriting formula developed by the state that rewards companies that keep their operating costs low.
"California says you can pay your C.E.O. a zillion dollars, but they aren't going to let you pass that cost on to their motorists," he said.
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