ASSEMBLY BANKING AND INSURANCE COMMITTEE STATEMENT TO SENATE COMMITTEE SUBSTITUTE FOR SENATE, No. 63 STATE OF NEW JERSEY DATED: MAY 5, 2003 The Assembly Banking and Insurance Committee reports favorably the Senate Committee Substitute for Senate, No. 63. This bill, a Senate Committee Substitute for Senate, No. 63, provides a comprehensive set of solutions to the automobile insurance availability and affordability challenges facing insurers, consumers and regulators in New Jersey. First, the bill consolidates several administrative functions relative to automobile insurance claims which are currently handled separately within the New Jersey Property-Liability Insurance Guaranty Association (PLIGA) to eliminate redundancies and inefficiencies. The bill eliminates the Unsatisfied Claim and Judgment Fund Board and transfers all of its functions, powers and duties, along with the Unsatisfied Claim and Judgment Fund, to PLIGA. Additionally, the administration of the claims runoffs of the New Jersey Automobile Full Insurance Underwriting Association ("JUA") and the Market Transition Facility ("MTF") are transferred to PLIGA as well. The bill eliminates one of the two main purposes of the Unsatisfied Claim and Judgement Fund (UCJF). The UCJF currently pays claims for hit and run or uninsured accidents in certain cases and reimburses insurers when medical expense benefits exceed $75,000 per person per accident. The reimbursement to insurers for medical claims in excess of $75,000 is eliminated for policies issued on or after January 1, 2004. According to the bill's findings, this elimination is appropriate because, when the UCJF was first charged with reimbursing insurers in this way, the amount of medical benefits provided was unlimited. Now, however, insurers are required to provide medical expense benefits only up to $250,000 per person, per accident. At the same time the bill eliminates this reimbursement, it requires the UCJF to accept responsibility for personal injury protection (PIP) benefits for pedestrians who are injured by an automobile and are not named insureds or resident relatives of a policyholder. Also, as part of these consolidations and reforms, UCJF assessments on insurers for 2003 are eliminated. In addition, PLIGA becomes the servicing facility for the administration of claim obligations of the New Jersey Surplus
2 Lines Insurance Guaranty Fund and the New Jersey Medical Malpractice Reinsurance Association. Next, the bill amends the "take-all-comers" provisions of the law, which under the provisions of the bill will be eliminated on January 1, 2009, to allow an insurer to qualify for an exemption from those provisions in any territory in which it has increased its business by a "percentage growth standard" established by the bill. The growth standard starts at 5% in the first year and declines 1% a year until it is phased out after 5 years. During the phase-out, insurers that have exceeded the territorial growth limit may utilize alternate underwriting rules for the acceptance of new business. The bill provides for a rolling one year review of the insurer's growth, which may entitle the insurer to use alternate underwriting rules for a period of six months. For example, if an insurer had 1,000 automobiles insured in a territory on December 31, 2002, it would use its alternate underwriting rules beginning January 1, 2004 if it insured in excess of 1,050 automobiles on December 31, 2003. It could continue to use the alternate rule on July 1, 2004 if its insured automobiles exceeded by five percent the number insured on June 30, 2003. Finally, on January 1, 2005, the insurer could continue to use the alternate rules if on December 31, 2004 it exceeded the number of insured automobiles on December 31, 2003 by four percent. Any eligible person denied coverage because the insurer has an exemption may receive coverage through the Personal Automobile Insurance Plan (PAIP or the "assigned risk plan") or may seek coverage from another insurer. The PAIP plan of operation would establish a voluntary rating tier to accommodate these drivers. The Commissioner of Banking and Insurance retains the authority to suspend the exemption if there is a noncompetitive market, which is presumed if PAIP risks reach 10%. Insurers qualifying for this exemption also will receive assigned risk credits from PAIP and will continue to qualify for the 2 for 1 non-renewal allowance. Also, as part of these changes, the bill extends the "sunset provision" for the operation of the automobile insurance urban enterprise zone (UEZ) voluntary rating tier under PAIP for an additional three years, so that the program will now operate for a total of eight years from the time of its inception, rather than the current five. The bill amends the "tier rating" provisions to allow insurers to assign insureds to a rating tier other than the standard tier upon the accumulation of more than 4 motor vehicle points. The current maximum an insured may have in a standard rating tier is 6. This amendment requires that insurers' rates remain revenue neutral if they reassign risks pursuant to this change. The bill amends the prior approval rate filing provision to build in a time line for regulatory action on automobile insurance rate requests so as to ensure efficiency. Specifically, upon receiving a filing, the Commissioner of Banking and Insurance is required to issue a Preliminary Determination within 90 days. The commissioner may
3 extend the deadline by 30 days for good cause. The Preliminary Determination must include the basis for the decision to accept, reject or modify the request. Unless the filer or an interested party requests a hearing, the commissioner may adopt the Preliminary Determination as a Final Decision within 30 days. If a hearing is requested, it will proceed on an expedited basis. If the commissioner fails to take action within the prescribed time frames, the filing will be transmitted to the Office of Administrative Law for a hearing and the commissioner must adopt the finding of the administrative law judge as the final decision. The bill also makes changes with respect to the expedited rate filing procedures afforded automobile insurers. It raises the ceiling for rate increases pursuant to expedited filings from 3% to 7% for the overall rate and from 5% to 10% for any single coverage. An insurer not using the expedited process in any year may elect to submit an expedited filing increasing rates by not more than twice those amounts in the subsequent year, so long as not more than one filing is made in any 24-month period. Procedurally, the bill provides that the commissioner must render a decision on an expedited filing within 30 days for a filing requesting up to 3% and within 45 days for a filing requesting more than 3% but not more than 7%, with a 15-day extension if necessary. It also changes the test for approval from a subjective to an objective one, by requiring that the resulting rates shall not be excessive, inadequate or unfairly discriminatory between similar risks, as is the case with prior approval rate filings. This bill contains provisions that simplify the procedures an insurer may use to withdraw from selling a particular type of insurance or to withdraw from the State. Insurers may make an informational filing with the commissioner and establish an orderly plan for nonrenewing outstanding polices to limit disruption in the market. These provisions go into effect on January 1, 2007. New provisions in the bill seek to better educate consumers by requiring companies to notify new and existing customers of their rights, as determined by the commissioner, providing them with premium calculations and advising them of rate increases, other than expedited filings. Insureds and applicants will receive an "Automobile Insurance Consumer Bill of Rights." The commissioner shall develop and disseminate an "Automobile Insurance Report Card," which shall be available on the official website for the Department of Banking and Insurance (DOBI). DOBI shall also publish information on its website concerning all consumer insurance rate increase requests filed, including all personal lines property/casualty coverages and Medicare supplemental coverages. The commissioner is authorized to impose penalties on an insurer which fails to provide any of the information required by these new provisions. In the interest of availability, the bill creates a new policy option with very limited benefits that will only be available to low income drivers who qualify for the federal Medicaid program. The policy will be priced by the commissioner and will include medical expense
4 benefits for emergency and catastrophic care only, and a $10,000 death benefit. Covered persons will be precluded from having liability or physical damage coverage and will be subject to the verbal threshold. Vehicles covered by a special policy will be considered uninsured for purposes of uninsured motorist coverage under other policies. The technical amendments necessary to accommodate the new special policy are included in the bill as well. Additional underwriting and cancellation changes are also accomplished by the bill. The bill allows cancellation of insureds who have knowingly provided materially false or misleading information in connection with any application, renewal or claim for benefits under a policy and classifies them as ineligible for purposes of writing in the voluntary market. With respect to cancellations, the commissioner is given the discretion to extend, by regulation, the time required for advance notice of a cancellation of an insured's policy by an insurer from the current 60 days to up to 90 days. It also increases the threshold for at fault accidents from $500 to $1,000 and allows the commissioner to increase or decrease the threshold to reflect changes in the Consumer Price Index. The bill also raises the minimum deductible from $500 to $750 for new policies and allows the commissioner to adjust the deductibles for collision and comprehensive coverage to reflect increases or decreases in the CPI. New Jersey's excess profits law is amended to extend the look back period from three to seven years to take into account fluctuations in the market over a longer period of time. Insurance fraud reforms are also incorporated in the bill. First, it requires insurance ID cards to be designed in such a way as to deter and detect counterfeit or fraudulent cards. Secondly, the bill adds a new crime of insurance fraud to the criminal code. A person is guilty of the crime of insurance fraud if that person knowingly makes, or causes to be made, a false, fictitious, fraudulent, or misleading statement of material fact in, or omits a material fact from, any record, bill, claim or other document, in writing, electronically, orally or otherwise, in support of or opposition to or in connection with: an insurance claim, reimbursement or other benefit; an application to obtain or renew an insurance policy; any payment made under an insurance policy or through a premium finance transaction; or an affidavit, certification, record or other document used in any insurance or premium finance transaction. Insurance fraud constitutes a crime of the second degree if the person knowingly commits five or more acts of insurance fraud and if the aggregate value of property, services or other benefit wrongfully obtained is at least $1,000. Otherwise, insurance fraud is a crime of the third degree. In addition to criminal penalties, the bill provides for sanctions on the licenses held by health care providers who commit insurance fraud in order to maintain the public trust and ensure the integrity of those professions. A person convicted of second degree insurance fraud who holds a license or certificate of authority to
5 engage in a profession or occupation shall forfeit that license and be forever barred from the practice of that profession or occupation. A person convicted of third degree insurance fraud shall have his license suspended and be barred from practice for at least one year. Additional convictions can result in forfeiture and convictions for certain other crimes of the second and third degree may also have such consequences under the bill's amendments to existing laws. Other amendments make accommodation for these provisions under the existing health care claims fraud law. There is also established within the Office of the Insurance Fraud Prosecutor an Insurance Fraud Detection Reward Program, to be funded from surcharges imposed under a new provision of the "New Jersey Insurance Fraud Prevention Act." A member of the public who has knowledge of or who believes that an act of health care claims fraud, insurance fraud or any other criminal offense involving or related to an insurance transaction is being or has been committed may provide the Insurance Fraud Prosecutor with a report or information pertinent to that knowledge or belief and may provide additional information that the Insurance Fraud Prosecutor requests. The Insurance Fraud Prosecutor shall maintain a 24-hour toll-free insurance fraud hotline to receive information from individuals who have such knowledge. The Attorney General, through the Insurance Fraud Prosecutor, is authorized to pay a reward of up to $25,000 to persons providing information leading to the arrest, prosecution and conviction of persons or entities who have committed insurance fraud. Finally, this bill revises the laws concerning uninsured motor vehicles by requiring the recipient of a citation for failing to possess or exhibit an insurance identification card pursuant to R.S.39:3-29, or registrant, to produce the insurance identification card or other satisfactory proof of liability insurance coverage to the law enforcement agency issuing the citation within 24 hours. Failure to provide the insurance identification card or other satisfactory proof of insurance within 24 hours shall result in the issuance of a warrant to impound the motor vehicle being operated when the summons was issued. Vehicles impounded pursuant to the bill could not be released until proof of valid motor vehicle insurance is presented to the impounding law enforcement agency, and all costs, penalties and fines are paid. The bill provides a procedure for an impounded vehicle to be sold at public auction should the vehicle not be claimed. The bill also increases the fine for a violation of R.S.39:3-29 from $100 to $150 and requires $25 of each fine to be deposited into the Uninsured Motorist Prevention Fund. Monies in the fund are dedicated for the enforcement of the compulsory motor vehicle insurance law. The committee also reported an Assembly Committee Substitute for Assembly, No. 2625, which is identical to this bill.