As Capacity Shrank Legislato
As Capacity Shrank Legislato
As capacity shrank, legislators moved to create a high-priced residual market to insure those drivers who couldn’t find other coverage. In 1983, an underpriced New Jersey Automobile Full Insurance Underwriting Association was established, and territorial rate caps and strict limits on insurer profitability were imposed.
By the late 1980s, the growing and under-funded JUA faced demands for some form of depopulation, but that meant imposition of a take-all-comers mandate and severe restrictions on market withdrawals to assure that a voluntary market would be available to handle the new business.
New Jersey insurers were left to pay the $1.3 billion JUA deficit and a portion of the successor Market Transition Facility deficit through assessments that could not be recouped from rates. Insurers were discouraged from investing capital in the state and insurance shortages grew. Urban areas experienced the greatest shortage, which prompted the 1997 implementation of a quota program.
As the cost of insurance rose, New Jersey continued to promote various forms of rate suppression. In particular, legislators repealed a flex-rate system that had previously ensured rate adequacy and eliminated an insurer’s ability to cease writing underpriced business. The public remained convinced that insurance prices were unfairly high, ranking insurance up with crime and taxes as principal concerns.