Rutgers University Study Shows Route To NJ Auto Insurance Market Stability

    CAMDEN, N.J.--March 19, 2002--Dr. John D. Worrall, professor and chair of economics at Rutgers University - Camden, in a study released today concludes that New Jersey's auto insurance laws are fundamentally flawed, guaranteeing an inefficient and unstable market that neither serves the state's motorists nor individual auto insurers.
    "While we have struggled for nearly 30 years with one 'fix' after another, our system is still dysfunctional," says Dr. Worrall. "Too much regulation has stifled competition and restricted consumer choice."
    "A Roadmap to Market Stability for the New Jersey Private Passenger Automobile Insurance Market", released through the American Insurance Association, finds that breach of implicit contracts and laws that deny flexibility in the face of changing conditions have led to a loss of insurers - over twenty in the past twelve years - while discouraging the entry of new firms.
    "Intended to protect consumers, the state regulatory structure actually ends up harming both the industry and policyholders," says Dr. Worrall.
    Dr. Worrall finds that reform attempts, beginning with the New Jersey Automobile Reparation Act of 1972 and continuing through the 80s and 90s, were at best stop-gaps instituted in the hope that problems would simply disappear. Often, as in the recent Automobile Insurance Cost Reduction Act, reform measures were never carried out, while harmful practices remained in place.
    The study examines reform efforts of elsewhere in the country, including South Carolina, Illinois and the District of Columbia, which carefully phased in competitive practices, restoring consumer choice, widening the market, and doubling the number of firms selling insurance.
    Dr. Worrall recommends several steps to serious auto insurance reform, including immediately implementing previously enacted reforms, eliminating the "Take-All-Comers" and non-cancellation rules, and lifting the 6 percent cap on auto insurer profits.
    "It has been very clear for a long time that the state's regulation of auto insurance is helping no one; not the state's drivers and not the insurance industry," said Dr. Worrall. "New Jersey needs to instill more competition among insurers and provide drivers more choices. Lawmakers need only to look at South Carolina, Washington, D.C. and Illinois to see that real reform that benefits everyone can be achieved."
    Dr. Worrall, in addition to being professor of economics and chair at the College of Arts and Sciences, Rutgers University, Camden, is associate editor of the Journal of Risk & Insurance.