NJ Wants to Make ‘Reverse Rate Evasion’ an Insurance Crime

Committee members of the New Jersey Assembly advanced a bill Monday that would classify “reverse rate evasion” as an unlawful offense, exposing motorists to prosecution if they purchase insurance out of state but keep their vehicle in New Jersey.

These “evaders” typically lie to their insurers by providing illegitimate registration and coverage information because they are trying to obtain cheaper out-of-state rates, according to Wayne DeAngelo (D-Hamilton), who proposed the bill, A 2204.

“Vehicle owners who misrepresent their residence are looking to reduce their own insurance premiums, but this instead results in a loss of revenue to the state, higher premiums for those who properly register their vehicles and reduced revenue for New Jersey insurers,” DeAngelo said in a statement.

The bill was passed out of the Assembly Financial Institutions and Insurance Committee by a 7-0 vote. The proposal would make “reverse rate evasion” a fourth-degree offense, one of the least severe classifications, putting the violation on par with petty theft. It would be punishable by up to 18 months in state prison.

NAIC Report Shows NJ Has Some of Nation’s Highest Rates

The latest report from the National Association of Insurance Commissioners (NAIC) showed that New Jersey had the second-priciest average auto policies in the U.S.

When tabulating costs for liability, comprehensive and collision coverage, the average New Jersey policy cost $1,276, outpaced only by Louisiana in the report from the NAIC, which publishes an annual ranking which the industry relies on to measure current auto insurance costs and expenditures.

In fact, the Garden State saw the biggest year-over-year jump—4.8 percent—in auto coverage costs between 2009 and 2010, according to the most recent data made available by the NAIC.

Meanwhile, North Carolina, which DeAngelo said is one of the states were New Jersey rate evaders go to purchase many of their illegitimate policies, showed much lower rates at an average of $707, according to the NAIC report. The Tar Heel state’s cost figures give it the 44th-lowest premium average of states in the U.S.

Pennsylvania, another nearby state that DeAngelo highlighted, showed around an average $907 for a policy.

Comparing auto insurance between those states shows large gaps. The average cost of a policy with liability, collision and comprehensive coverage is 45 percent less in North Carolina and 29 percent less in Pennsylvania than it does in New Jersey. The attraction of such savings has made rate evasion increasingly popular for New Jersey motorists, and state investigators have recently seen a “growing trend,” according to DeAngelo.

“The prosecutor has been suggesting this change in the law for more than four years, and we’re going to finally get this done for the benefit of all law-abiding New Jerseyans,” he said.

In April 2012, Pennsylvania authorities busted up a large crime ring that had been facilitating rate evasion for residents of states like New Jersey.

A combination of policy choices, expensive cars and dense population all lead to higher average insurance losses for New Jersey drivers, according to Marshall McKnight, spokesman for the state’s Department of Banking and Insurance (DOBI).

“We are in the most densely populated state in the country, so the loss experience is higher because there are more expensive accidents,” McKnight said in an interview with OAIN. He added that residents “tend to buy more coverage, and they tend to have more valuable cars.”

McKnight also said that price of auto insurance in New Jersey has been driven upward by ballooning costs paying personal injury protection (PIP) claims that the DOBI estimates lost insurers 23 cents for every PIP dollar they received between 2000 and 2009.

Regulators hope recent reforms that pared down compensation-eligible medical procedures and became effective earlier this month will “exert downward pressure” on average rates in the state, according to McKnight.

McKnight offered some cost-saving tips to motorists, who should shop around to find the best kind of coverage that fits their driving habits. For example, those who are “prone to crashes” should seek out accident forgiveness programs that insurers offer, he said, adding that there are ways that any driver can obtain coverage discounts.

Any driver completing a safe driving course often net at least a 10 percent savings on a policy, McKnight said, which is “a way anybody can get a discount on insurance.”

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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