New Jersey has had the highest auto-insurance rates in the country 14 out of the last 16 years, so finding ways to lower rates are a top priority for lawmakers.  However, New Jersey’s new proposal may end up punishing urban drivers, noted a recent Jersey Journal editorial.

In New Jersey, and most of the United States, insurance premiums are based on the population density in the area where the car is registered. New procedures, resulting from the 1998 Automobile Cost Insurance Reduction Act, have been proposed by the NJ Department of Banking and Insurance. The rules would allow for re-mapping and recounting of state density levels during this fiscal year. They have not yet been signed by Governor McGreevey.

New Jersey is now divided into 27 insurance zones where population density is measured.  Residents in more populous areas pay more.  Under the new plan, 50 zones would be allowed, allowing insurers to separate urban areas from nearby suburbs when determining rates. 

This will be bad news for city car owners and probably good news in first-ring suburbs. Of course, urban drivers have the most access to mass transit and walkable destinations, and may have shorter commutes.  It is backwards to have the highest rates for people who likely drive the least, since generally, it is not car ownership that causes accidents, but the extent of exposure to traffic. The Star-Ledger has also noted that the state plans to discontinue a cap on urban rates, further punishing urban drivers.

In 2002, Texas became the first state to explicitly permit per-mile insurance, a system that bases rates on distance actually driven. It uses driver exposure on the road as a key determinant of risk, and thus rewards car owners who are frugal or efficient about driving, or who avail themselves of other ways to travel. On the other hand, under the proposed New Jersey system, a 50% reduction in miles traveled would produce only a 5% decrease in premiums. Commentators have also noted, however, that increasing population is the suburbs could mean higher rates across much of the state, producing something of a leveling effect. City residents will still be hit hardest, however.

Comments on the new rules are due November 6, and can be sent to commissioner@dobi.state.nj.us. 

A primer on distance-based insurance is available on-line at www.vtpi.org/tdm/tdm79.htm. 

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