New Jersey scrapping car insurance caps

The state is eliminating auto insurance caps that affect several Passaic and Bergen County municipalities, but rates in those areas are not guaranteed to rise, state officials said Thursday.



Consumer advocates disagree, saying rates are almost certain to increase for drivers in the primarily urban areas where the caps are now in place.



The caps, which the state established in 1983, prohibit insurance companies from charging more than 35 percent above an insurer's statewide average. The state is divided into 27 territories, 10 of which are protected by the cap.



The Passaic and Bergen municipalities where rates are capped include Paterson, Passaic, Clifton, Lodi, Wallington, Elmwood Park and Garfield.



The caps were put in place in response to rising auto insurance rates in urban areas, which typically have higher rates because accidents and thefts are more common there.



John Dyke, chairman of the NJ Auto Agents Alliance Inc., which represents agents and consumers in the state, said he expects drivers in urban centers will eventually be hit with steep increases.



"The caps were put in place 20 years ago and they were put in place for a reason," said Dyke, also an insurance agent. "Rates were soaring in the urban areas."



But Jaimee Gilmartin, spokeswoman for the state Department of Banking and Insurance, said while it's too early to say what impact removing the caps will have, rates could actually go down. She said that more insurance companies would be likely to do business in the state after caps are eliminated. Competition among those companies could lead to savings for drivers, she said.



"Hopefully, this will spread the burden and balance out the auto insurance market in New Jersey," she said.



But Dyke said auto insurance companies will not compete for the business of all drivers, just the same 25 percent of suburban drivers who have clean driving records and are considered low risk.



It will take at least a year for the caps to be eliminated, Gilmartin said.



The first step toward having the caps dropped began last month when the state adopted new regulations that became effective this week. The next move is for the governor to appoint a commission that will hold public meetings as it draws up a new map establishing regions that will be used as guidelines for insurers to set rates. The state's existing map is more than 50 years old.



Once the new map is created, the department must give its approval before it could be used. Auto insurers could use their own rating maps, but those also need department approval. After the mapping process is done, which is expected to take at least a year, the caps will be lifted.



Whether a driver lives in an urban area is just one of many factors that determine an auto insurance rate, said Ryan Salonia, spokesman for State Farm Insurance in Parsippany.



"It all depends on the individual circumstances of who holds the policy," he said, adding that rates are affected by a driver's record, the number of years he or she has had a license, and the records of other drivers on the policy.



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