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On car insurance, candidates for governor driven apart
Originally appeared in Philadelphia Inquirer on 10/09/01 The deep philosophical differences between the two major-party candidates for governor could not be more clear than on the always volatile issue of car insurance.
Democrat James E. McGreevey sees state government as the answer, while Republican Bret D. Schundler sees it as a big part of the problem.
At a car dealership yesterday in his hometown of Woodbridge, Middlesex County, McGreevey promised to use state government like a blunt instrument to keep New Jersey's car-insurance rates - already the highest in the nation - from rising. Fleshing out proposals that he had raised earlier in the campaign, McGreevey promised to crack down on uninsured drivers, impose tougher penalties for insurance fraud, and restore the Office of the Public Advocate to intervene for consumers in rate-hike cases.
Estimating that 22 percent of auto premiums pay for fraud and uninsured drivers, McGreevey said his administration's goal would be "to tackle those two challenges."
Even that would merely stabilize rates, not reduce them, he said.
When McGreevey hammered away at the issue during his unsuccessful campaign to deny Gov. Christie Whitman's reelection four years ago, he promised to cut auto rates by 10 percent. But this time, he said, "the need to be straightforward" with motorists prevented him from promising rate cuts.
By contrast, Schundler said he could cut premiums by easing government involvement, not expanding it.
In an interview last week to discuss the issues in the gubernatorial campaign, Schundler said he would seek to remove "regulatory barriers" that prevent free-market competition and fair pricing of insurance products.
He said, for example, that insurance companies should have the flexibility to raise and lower rates within a preapproved range to allow them to better react to the needs of the marketplace. He further said he thinks that lowering obstacles to doing business would prompt more insurance companies to enter the state.
Schundler was also critical of the state's excess-profits law, which requires insurers to refund policyholders if their profits average more than 6 percent over three consecutive years.
"If you have a system that says, 'If you make money, we will take the profits; if you lose money, that's your problem,' then that's a good way to make everybody want to leave this state," Schundler said.
Several companies - including State Farm, the largest auto insurer in the state - are seeking state approval to leave New Jersey's auto-insurance market. The companies complain that the Whitman administration mandated a 15 percent rate cut in March 1999 before it could fully implement the cost-saving elements of that plan that were designed to offset lost revenues.
Whitman cut rates in her second term after promising late in her campaign against McGreevey that, if reelected, she would address the state's high auto-insurance rates. The new insurance laws were designed to reduce fraud, contain medical costs, and limit lawsuits - all elements that either were slow to be implemented or will take time to take full effect.
Schundler also said he supported an idea - proposed four years ago by Whitman but rejected by the Republican-controlled legislature - that would have given motorists the choice to accept or refuse the right to file pain-and-suffering lawsuits. By rejecting the right to sue, a motorist could have saved 20 percent to 30 percent in premiums, Schundler said.
In making his point, Schundler compared winning a big judgment in a pain-and-suffering lawsuit to hitting the jackpot in the lottery. Most people, he said, would rather get the guaranteed savings up front, but aren't given the choice.
"If you want to buy a lottery ticket, you should go out and do it," he said. "But if you don't, I would say you shouldn't have to go out and do it.
Schundler said he would like to place some of his insurance ideas in a voter referendum, calling it the "best way to protect yourself from demagoguery."
John Tiene, lobbyist for the New Jersey Insurance Council, a coalition of auto-insurance companies, said he welcomed McGreevey's more modest proposals this year, compared with four years ago. But he was critical of Schundler's plan to put insurance issues on the ballot.
"We see a change, a maturity in McGreevey," Tiene said. "What concerns me is public policy by referendum. This is what got California in a significant number of problem areas."
Auto insurance has been an issue in the governor's race off and on for decades.
For the seventh year in a row, New Jersey had the highest average rate in the nation in 1999, at $1,033.88, according to the most recent survey by the National Association of Insurance Commissioners. Supporters of the latest efforts at reform say the next survey will show that New Jersey's rates are no longer the highest.
Still, policy experts, such as economics professor John D. Worrall of Rutgers University-Camden, maintain that rates will always be relatively high because the state is the most densely populated and one of the most expensive places to do business.
McGreevey acknowledged at the Woodbridge dealership yesterday that he would not reduce rates, but he offered ideas for stabilizing them.
Among other things, he proposed mandatory jail time for those who commit insurance fraud and impounding cars of those who do not have insurance.
Tiene said the industry estimates that 400,000 to 600,000 drivers in New Jersey have no insurance. He said that the number could be reduced, pumping millions of dollars into the insurance system, but that there would always be some drivers without coverage.
"It is not the definitive solution," Tiene said.
But the line wins McGreevey applause on the campaign trail.
During a recent speech to a group of more than 300 senior citizens, McGreevey was cheered when he said he would get uninsured drivers off the streets.
"I always know who the uninsured drivers are: They are the ones who don't clap," McGreevey joked.
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