INDIANAPOLIS (March 5, 2007) – New Jersey drivers could see a return to high prices and fewer choices for their insurance if legislators adopt underwriting restrictions. Senate Bill 1714 would represent a “significant step backward for New Jersey, and it could very well be the first step toward a return to a moribund market,” said Paul Tetrault, state affairs manager for the National Association of Mutual Insurance Companies (NAMIC).
The legislation would prohibit insurers from using certain rating factors in the underwriting process. But according to NAMIC, such restrictions could hamper competition and thereby hurt consumers.
“Consumers benefit when insurance companies compete for their business,” Tetrault said in testimony submitted to the Senate Commerce Committee today. “Insurance companies are able to compete for business when they have the freedom to engage in the underwriting process by utilizing their independent judgment and analysis regarding a wide range of risk factors. By far, the best recent example of these principles is the New Jersey private passenger auto insurance market.”
Auto insurance reform legislation enacted in 2003 gave carriers the ability to underwrite and price business using their independent judgment and assessment of risk factors, with significant results. “It has been well documented that since the passage of competitive reform legislation, the New Jersey private passenger auto insurance market has undergone a remarkable transformation,” Tetrault stated in his testimony. “Insurers have been able to compete by using a wide range of risk factors in the underwriting process, and the result has been significantly lower overall prices and a multitude of choices for individual consumers.”
As to concerns about consumers being charged higher prices based on certain underwriting factors, Tetrault pointed out that a competitive market with a large number of companies using a wide range of underwriting factors allows consumers to respond by simply choosing another company. “Another company may not use the same factors, may use them in a different way, or may utilize other factors that inure to the particular consumer’s benefit.”
Underwriting freedom enables insurers to charge the correct price relative to an individual’s risk characteristics. “Underwriting restrictions hamper such proper pricing, resulting in some consumers paying more than they should and other paying less relative to their risk characteristics,” Tetrault said. On a market level, underwriting freedom results in appropriate risk classification, competition and efficiency.
Tetrault urged the lawmakers to consider the following possible ramifications about the measure before voting on it:
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Posted: Monday, March 05, 2007 12:00:00 AM. Modified: Tuesday, March 06, 2007 11:57:30 PM.
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