By Max Dorfman, Research Writer, Triple-I
Insurance groups argue that new laws in California and New Jersey that raise the minimum auto liability coverage required of drivers could prompt price-sensitive consumers to drop their coverage.
The California law, signed by Gov. Newsom in October, raises minimum liability coverage to $30,000 per individual injury or death, up from $15,000; $60,000 per accident, from $30,000; and $15,000 for property damage, up from $5,000. These changes take effect on January 1, 2025
The New Jersey law, signed in August 2022 by Governor Murphy, raises the limits in two steps: first to $25,000 per injury, $50,000 per accident and $25,000 for property damage effective January 1, 2023, and then to 35 $000 per claim and $70,000 per claim. accident on January 1, 2026. Property damage coverage remains unchanged for the second increase.
To better understand the impact this will have on insurers and consumers, we sat down with Gary R. La Spisa, II, Vice President, Insurance Council of New Jersey, and Janet Ruiz, Triple-I’s Director of Strategic Communications , which specializes in the California insurance landscape.
Why are these laws being passed now?
La Spisa: While ICNJ understood the need for, and ultimately supported, a move from our current minimum requirements of 15/30/5 to the next currently submitted level of 25/50/25 to keep pace with average losses, we advocated against introducing a second state-imposed premium increase on drivers with minimum limits.
Ultimately, 1.36 million New Jersey drivers will face at least one premium increase as a result of the law, with an estimated annual increase of $130. Unfortunately, we cannot estimate the impact of the second hike, as 35/70/25 limits do not exist in any state.
Ruiz: We’ve seen medical and repair costs increase dramatically and an increase in accidents and fatalities now that pre-pandemic driver numbers are back on the road. As inflation, supply chain issues and legal costs rise, we are concerned that this will cause drivers who cannot afford increased limits to drop coverage
What are the consequences of consumers losing coverage?
La Spisa: Currently, the rate of uninsured motorists in New Jersey is estimated to be the lowest in the nation, at 3.1 percent. We are concerned that some drivers will drop coverage, which will push this number up and force carriers to raise rates for uninsured/underinsured motorist coverage.
Ruiz: Consumers who lose coverage risk losing their driver’s license, fines and the inability to register their car with the DMV. California now has the highest number of uninsured drivers in the United States, estimated at 3.6 to 4.1 million people.
What other effects do you expect?
La Spisa: The law in New Jersey offers a bare bones insurance product, which we call the basic policy. We expect that as affordability becomes more of an issue, some drivers will opt for this limited product over a full standard policy.
Ruiz: California laws also offer a low-cost auto insurance product, which could bring more customers as we face affordability issues for low-income drivers. The state expects fewer underinsured accidents due to the higher limits. We expect to see more drivers in the low cost car program and litigation for higher verdicts for those with the higher limits.
Do you think this will have a ripple effect on other states?
La Spisa: Maybe. The challenge is to find a balance between adequate coverage and affordable premium to avoid pricing drivers from insurance all together.
Ruiz: Many states have already raised minimum liability limits and may not make changes.
How are insurance companies responding to these price increases, or do they plan to?
La Spisa: Most companies already have a 25/50 bodily injury and $25,000 property damage product filed in New Jersey, so the impact of the initial increase on carriers is primarily on the administrative and IT fronts as they reprogram their systems and renew policyholders with current minimum requirements of the new standard.
For the second increase, carriers will have a lot of work to do, including determining pricing for this new limit that doesn’t exist anywhere in the country and submitting this new product to the department before it is rolled out.
Ruiz: Insurance companies will adapt to the new law. Many are reluctant, due to affordability issues for low-income earners.
What can consumers do to manage these increased costs?
La Spisa: Consumers should carefully review their policies and always consider shopping around to find the policy that best fits their needs and budget.
Ruiz: We recommend that people shop and compare. Ways to save are to choose a higher deductible, package home and car insurance or drop comprehensive or collision insurance on older cars with a low value.