Prof. Urges N.J. Auto Insurance Deregulation

By Daniel Hays

NU Online News Service, March 21, 4:42 p.m.EST?A state university economics professor, after adetailed study of New Jersey's "pathologic" regulation of autoinsurance, has called for immediate adoption of flex rating andeventual deregulation of the system.

However, John D. Worrall, chairman of the Rutgers UniversityEconomics Department in Camden, N.J., said today that he would notbe in favor of removing all controls. "I'm in favor of solvencyregulations," he explained. "Not everyone agrees with totalderegulation."

Indeed, one group--the Newark, N.J.-based Coalition for AutoInsurance Competition--said today they thought "creating new lawsand regulations that spur competition and consumer choice is theanswer to New Jersey's auto insurance mess, not deregulation."

"We need a regulatory system that promotes competition,encourages companies to sell auto insurance in New Jersey, andcreates a stable market that offers more choices for consumers,''said John Friedman, who chairs the newly-formed coalition. Mr.Friedman is assistant vice president and senior legislative counselfor USAA, based in San Antonio, Texas.

Mr. Worrall made his case for regulatory reform in a 41-pagereport released this week, entitled "A Roadmap To Market StabilityFor the New Jersey Private Passenger Automobile InsuranceMarket."

He noted that New Jersey adopted a Automobile Insurance CostReduction Act in 1998, but has still not promulgated its provisionsfor dental and hospital fee schedules, a new territorial ratingmap, and new caps, and only partially adopted a medical feeschedule, while at the same time mandating a 15 percent raterollback. He urged immediate activation of all the act'sprovisions.

He charged that the state has a "dysfunctional regulatory systemthat does not permit companies to adjust prices when economicconditions change."

Problems with the system, he noted, include average injury costsat twice the national average and "one-third higher than thesecond-most expensive state (Delaware), and 50 percent higher thanthe third-most expensive state (New York)."

He found that rate decisions "virtually always result in denialor partial approvals," while a Joint Underwriting Association setup to cover drivers unwanted by the voluntary market had run up a$3 billion deficit--half of which was passed back to insurers, withthe rest going to drivers through a surcharge.

Mr. Worrall said that adoption of rates without prior approvalshould be allowed within a band that would allow rates to change upto 10 percent. This change, he said, should come with the abilityfor insurers to select their own risks.

The professor said the law that allows New Jersey to requireinsurers that leave the private passenger auto market to surrendertheir licenses to write other lines "is dumb economics, bad publicpolicy, and ill-advised law. It should be scrapped as quickly aspossible."

In support of deregulation, he noted that the state does notregulate commercial auto insurance and "the market is healthy." Ablue ribbon panel should begin drafting transition legislation, hesaid.

According to Mr. Worrall's report, New Jersey has 67 firmsselling auto insurance, compared with 129 in Illinois, which hasderegulated.