INSURANCE

DEPARTMENT OF BANKING AND INSURANCE

DIVISION OF INSURANCE

Special Rules for Effecting Coverage for Private Passenger Automobile Insurance

Proposed Amendments: N.J.A.C. 11:3-44.1, 44.2 and 44.3.

Authorized By: Donald Bryan, Acting Commissioner, Department of Banking and Insurance

Authority: N.J.S.A. 17:1-8.1, 17:1-15e; 17:33B-15 et seq. and 17:29A-46.1 et seq.

Calendar Reference: See Summary below for explanation of exception to calendar requirement.

Proposal Number: PRN 2002-48

Submit comments by March 23, 2001 to:

Karen Garfing, Assistant Commissioner

Department of Banking and Insurance

20 West State Street

PO Box 325

Trenton, New Jersey 08625-0325

The agency proposal follows:

The Department of Banking and Insurance ("Department"), in a continuing effort to ensure that private passenger automobile insurance policies are properly and adequately rated, has observed that certain provisions in N.J.A.C. 11:3-44 may not have been performed adequately. Under the existing rules, it appears that insurers may not have been able fully to determine the exact number of regular operators of all motor vehicles being insured under new private passenger automobile policies. Current rules require applicants for coverage only to provide information regarding each resident licensed driver who is to be a named insured under the policy or who is the principal driver of a vehicle insured under the policy.

It has been observed that applicants for coverage have not been listing all of the licensed drivers in a household who are regularly using vehicles that are covered under a policy. Of additional concern is the inability to obtain the driver’s license number of all regular operators. This may mean that the insurance eligibility points of those operators are not properly assessed and, in some cases, may permit the coverage of ineligible persons in the voluntary market.

Of even greater consequence is the deterioration of the insurance pool caused by inadequate rating of risk and the systemic fraud engendered by the coverage of undisclosed persons. In all such cases, the policies are not adequately and fully rated, which exposes the insurer to greater losses than anticipated. As a result, the Department proposes to amend subchapter 44 to permit insurers to obtain relevant information regarding all regular operators of insured vehicles.

Proposed N.J.A.C. 11:3-44.1(c) will reflect the purpose of these amendments, which will permit insurers to acquire and consider the identified information pursuant to their filed and approved rating plans.

Proposed N.J.A.C. 11:3-44.2 establishes a revised definition of the term "completed written application," which will now include all pertinent information regarding regular operators of vehicles insured under the policy. There is also a new definition proposed for the term "regular operator" which is being defined as any individual who uses a vehicle insured under the policy 10 percent or more, when that person's usage would be considered a rating factor under the insurer's approved rating plan.

Proposed N.J.A.C. 11:3-44.3(a)6 is being amended to permit insurers to inquire regarding the significant rating information of all regular operators of a vehicle insured under the policy. The proposed amendments to N.J.A.C. 11:3-44.3(b), (c) and (d) establish the right of insurers to cancel a policy within the first 60 days of coverage in the event an insured does not provide the required information regarding regular operators.

This rule proposal provides for a comment period of 60 days, and, therefore, pursuant to N.J.A.C. 1:30-3.3(a)5, is not subject to the provisions of N.J.A.C. 1:30-3.1 and 3.2 governing rulemaking calendars.

The primary social impact of these amendments will be to improve the ability of insurers to properly and adequately rate private passenger automobile insurance coverages. The Department has determined that not all applicants have fully and properly revealed information about all regular operators of vehicles insured under a policy. This action not only wrongfully deprives an insurer of the proper rates, but also may constitute a fraudulent application for coverage. This increases the economic burden on all other insureds to make up for the losses that are engendered by the failure to disclose. Hence, the Department has concluded that a positive social impact will result from the adoption of these amendments. Insurers will have more information in order to properly rate coverage; the insurance eligibility points and driving record of all regular operators of a vehicle will be properly considered at the time a policy is bound; and dishonest applicants for coverage will be less likely to hide the full nature of vehicle usage.

The proposed amendments will positively benefit insurers and members of the general public. Insurers will be permitted to obtain rating information regarding all regular operators of vehicles, and therefore be able to account for all of the eligibility points of all persons expected to use an insured vehicle. Secondly, as the insurance pool will reflect the true nature of the risk, insurance rates may stabilize and more adequately reflect the marketplace, thereby benefiting the public at large.

A Federal standards analysis is not required because these amendments regulate the business of automobile insurance, which is governed by Title 17 of the New Jersey Statutes, and is not subject to any Federal requirements or standards.

N.J.S.A. 52:14B-4(a)(2) requires that all notices of a proposal to amend rules include a "jobs impact statement which shall include an assessment of the number of jobs to be generated or lost if the proposed rule takes effect."

In accordance with this statutory obligation, the Department has conducted a review of the foreseeable impact of these rules on jobs in the State of New Jersey. No demographic, scientific or workforce studies are available. However, the Department does not believe that these amendments will have a negative impact on job creation. To the extent that the proposed amendments will allow insurers adequately to rate private passenger automobile insurance coverage, the increased efficiency may encourage stability in the insurance marketplace and may enhance the opportunity for new insurers to do business in the State of New Jersey, thus creating new jobs.

The Department anticipates that the proposed new rules will have no impact on the State agriculture industry.

Pursuant to the New Jersey Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq., a "small business" means any business resident in this State that employs fewer than 100 full-time employees; is independently owned and operated; and is not dominant in its field. A few New Jersey automobile insurers meet this definition. The Department observes that, in most cases, the proposed amendments are not imposing any new recordkeeping, reporting or compliance obligations, but are merely permitting all insurers, large and small, to obtain all of the needed information properly to rate policies. All private passenger insurers will be permitted to benefit from the opportunities provided for in these amendments. Additionally, it is not clear that any insurers will incur any new expense. Thus, the Department does not believe that these requirements will impose any undue burden on small businesses, in that they are not treated any differently than any other insurer. For this reason, and to ensure consistency in the rating practices of insurers, the proposed amendments do not provide any differentiation based on an insurer's size.

Full text of the proposal follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):

(a) - (b) (No change.)

(c) This subchapter also implements the provision of N.J.S.A. 17:29A-46.1 et seq., to afford insurers the opportunity to acquire and consider all relevant information necessary to rate policies properly and adequately.

11:3-44.2 Definitions

The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.

. . .

["Completed written application" means a signed application that contains the minimum information necessary as set forth at N.J.A.C. 11:3-44.3(a) to determine whether the applicant is an eligible person, to rate and underwrite the policy, is accompanied by a completed coverage selection form as provided at N.J.A.C. 11:3-15.6 and, if requested, a copy of the applicant’s driver’s license, a copy of the motor vehicle registration of the principal vehicle to be insured, one additional proof of New Jersey residency and an acknowledgement of requirement for insurance inspection form where physical damage is requested.]

. . .

"Regular operator" means any person or persons whose usage of the vehicle or vehicles insured under the policy is 10 percent or more in cases, whether or not a member of the household approved rating plan permits consideration of said person's usage in rating the policy.

11:3-44.3 Duty to provide coverage upon receipt of a completed written application

(a) The minimum information necessary to determine whether an applicant is an eligible person and to rate and underwrite the policy is as follows:

1. - 5. (No change.)

6. Information regarding each [resident] licensed driver who is to be a named [insurer] insured under the policy, or who is [the principal driver] a regular operator of a vehicle insured under the policy, or who [is] are not otherwise a named insured under a separate policy of automobile insurance [including]. Information regarding regular operators to be insured under the policy may include:

1. The driver’s license number of [the applicant] each regular operator;
2. (No change.)
3. A completed and signed coverage selection form; and
4. (No change.)

(b) An insurer, by itself or through its producers with binding authority, shall provide

coverage to an eligible person applicant who submits a completed written application that includes the information in (a) above.

1. (No change.)
2. Any document [which an insurer requires] required to be submitted in connection with an application or renewal shall be prominently requested in the application or renewal form. An insurer shall not issue a notice of incomplete application in accordance with (c) or (d) above unless the applicant failed to provide the minimum information necessary to determine the eligibility of the applicant or any regular operator of the vehicles listed on the application.
3. (No change.)

(c) If upon receipt of an application from a producer without immediate binding authority or directly from an applicant, an insurer finds that the application is incomplete or fails to disclose required information on all regular operators of the vehicles to be insured under the policy and the insurer is unable to determine whether the applicant or any regular operator of any vehicles to be insured under the policy is an eligible person, the insurer shall, within five business days of the date the application was received by it, issue[d] a notice which:

1. - 3. (No change.)

(d) If, during the first 60 days that a new policy is in effect, the insurer ascertains that the applicant failed to disclose the necessary information required on the application to determine whether the applicant or any regular operator of the vehicles listed on the application is an eligible person, the insurer shall issue a written notice to the applicant which clearly and specifically identifies the deficiencies and the information necessary, and allows the applicant 15 days to provide the requested information. The request for information shall either be sent by certified mail or the insurer shall retain date stamped proof of mailing from the U.S. Post Office listing the name and address of the applicant. If the information is not provided within the specified time, the insurer may issue a notice of cancellation within the first 60 days of the policy, for failure to provide a completed written application. The insurer who issues such cancellation shall not be required to accept an application from the applicant for one policy period.

[d] (e) (No change in text.)