Stabilizing Insurance Costs Will Fix Broken NJ PIP Program

CORNER OFFICE

When it comes to automobile insurance in New Jersey, it always has been a good news/bad news type of story. Right now, it's bad news, and it could get even worse.

In 2003, we made some great progress in reforming automobile insurance in the Garden State, so much so that we ended up attracting new companies wanting to do business here. The end result of those nearly decade-old reforms was more competition in the marketplace, which meant good news for consumers who suddenly had companies competing for their business. Consumers also found it much easier to shop for and buy insurance products that best suited their individual needs.

That was the good part.

The one issue that was left unaddressed during the 2003 reforms was the personal injury protection, or PIP, benefits system, a huge part of our no-fault insurance system, because some felt it was the proverbial "third rail" and could jeopardize the entire reform effort. Many who worked on the 2003 legislation knew PIP reforms would need to take place one day. Well, that day has arrived.

Today, New Jersey has the second highest auto no-fault average claim cost (severity) in the nation. It is more than twice as high as New York, and more than four times as high as Pennsylvania. Since 2004, barely a year after enacting those initial automobile insurance reforms, the average claim cost was $12,136. In late 2011, that number had increased by more than 40 percent, to $17,025. For those keeping score, that was the second-highest increase in the nation over that period.

New Jersey's PIP system has fallen victim to rampant and unfair arbitration, the overutilization of medical treatments, and outright fraud. Because of these factors, the PIP system is losing money. Recent data compiled by the Department of Banking and Insurance shows that for every PIP premium dollar collected by insurers, $1.23 in costs is being paid out. It is clear that if this trend continues, the only way to compensate for those losses will be through increased premiums. The system, in its current form, is simply unsustainable.

For those who purchase lower levels of PIP coverage, this scenario is even more troubling. These policyholders are among the first to have their PIP benefits exhausted as soaring medical costs rapidly consume the value of their PIP dollars.

In July of last year - and it has not decreased since then - New Jersey's average PIP premium was the highest among all nofault states. The estimated annual amount paid for PIP coverage in New Jersey was $269, which is roughly 60 percent higher than the amount paid in all other no-fault states combined- $169.

Regrettably, there is a word for New Jersey's PIP system: broken. It is imperative that PIP costs are brought under control and stabilized or we are likely to see another insurance crisis in New Jersey. There are steps that can be taken, and a few weeks ago, DOBI took a step in the right direction when it proposed several PIP reforms through the regulatory process in an attempt to stem the tide of rising medical costs.

Even though DOBI took a step in the right direction, there is still quite a bit of road left to travel before arriving at a functional, comprehensive PIP benefits system that is needed to make a true no-fault automobile insurance system in New Jersey work. It is time we started down that road.

"If this trend continues, the only way to compensate for those losses will be through increased premiums. The system, in its current form, is simply unsustainable."

- Deano Lykins

Deana Lykins is executive director of the Insurance Council of New Jersey.