NJ Seeks ‘Bigger Bang for Buck’ with Changes to PIP Insurance

Hoping to drive down the cost of auto insurance in New Jersey, regulators there set into place the last of new rules governing the state’s personal injury protection (PIP) system this week.

It was the coda to an extensive effort to reform a PIP system that is believed to have inflated the cost of car coverage in New Jersey. Now, regulators, drivers and the auto insurance industry in the Garden State await the impact of the changes and whether they will “exert downward pressure on premiums,” according to Marshall McKnight, spokesman for the New Jersey Department of Banking and Insurance (DOBI).

The PIP portion of auto insurance coverage in New Jersey compensates policyholders for post-crash medical costs no matter who was at fault for the collision. But the rising costs of the system have led to bigger exposures for insurers that, between 2000 and 2009, have “lost 23 cents for every PIP dollar received,” McKnight said.

Facing higher PIP costs, insurance carriers began passing those costs onto consumers with higher premiums. Based on 2009 data from the National Association of Insurance Commissioners (NAIC), New Jersey had the second highest average auto insurance expenditure in the U.S. that year.

“Downward pressure is needed because PIP costs were beginning to cause upward trends on rates,” McKnight said in an interview with Online Auto Insurance News (OAIN). “We need to control costs so that New Jersey drivers get more access to medical services with the same premium dollar.”

The DOBI began overhauling the PIP system last summer, part of a state-mandated evaluation every two years, with thousands of medical price code proposals that were open to public comment. Much of the public response came from physicians who felt PIP fees for their services were underestimated or “unfairly targeted.”

“These specialists are particularly important to patients who have been injured in car accidents,” the DOBI stated in a collection of responses to public comments provided to OAIN. “The unintended consequences of under-assessing fees may deter these specialists, already in short supply, from treating the PIP patient population.”

The DOBI withheld about 25 percent of its initial proposals that were eventually rewritten and reissued for public comment before taking effect this week, according to McKnight, who added that changes included the removal of some price codes for spinal and neurosurgical procedures.

In its responses to public comment, the DOBI stated that it had removed those codes “not only based on the fact that there were few providers who performed neurosurgical and spine surgery procedures but because the codes are high-value, low-frequency procedures that required more study.”

There are now around 2,500 total price codes with about 1,000 added to that total from the recent round of changes, according to McKnight.

NJ Sees Drop in Policyholders with $250,000 PIP Limit

In New Jersey, the maximum PIP benefit is $250,000, with about 3 out of every 4 drivers carrying that maximum benefit in 2011, according to McKnight, who added that the remaining quarter of policyholders were “scattered among lower levels of coverage.”

But the proportion of drivers having such high coverage limits has fallen since premiums have gone up.

Back in 2004, nearly all (98 percent) had the $250,000 maximum benefit, according to McKnight, which is also the default benefit insurers are required to offer.

When more insurers began offering default rates less than the $250,000 maximum, the DOBI issued a bulletin in June to remind insurers that, while consumers may choose lower levels of coverage on their own, they are required to be offered the $250,000 maximum benefit as the default choice.

“If the costs are less over time and PIP premiums go down, our hope is that fewer people will opt out of the $250,000 coverage,” said McKnight, adding that more policyholders with maximum coverage would be healthy for the current, more-stabilized system. “There will be a bigger bang for buck on every PIP dollar, whether consumers choose the max or lower limits.”

Over recent years, PIP costs have hit the consumer more than anything, with “nearly all of New Jersey drivers getting higher auto rates because of high PIP costs,” according to McKnight.

The DOBI “can’t speculate on a timeline” that consumers will begin seeing lower rates because of the changes to the PIP system, he said.

Regulators Say Insurers Undeterred by PIP

Insurers, however, “haven’t been driven away” by increasing PIP costs, said McKnight, who added that Farmers entered the New Jersey marketplace just last year.

“They came into the state, set up shop and began writing policies,” he said. “They said our approach to the PIP system played into their decision.”

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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