N.J.’s Escalating Auto Insurance Costs Trigger a California-Style Revolt : Reform movement: Companies are expected to wage a furious battle over a plan by Gov. Florio to cut rates 20%. The Legislature opens debate.

Harriet Goldstein wonders why she bothered to buy car insurance in the first place.

The 58-year-old Teaneck woman drove 41 years without an accident, she said, until one icy day when her car slid into another and left a small dent. Her insurance company paid the $600 that a body shop claimed for the damage, but then it turned around and assessed her a $900 surcharge on her premium. What’s more, thanks to that one weather-related accident, her policy was dumped into a state-run pool established for bad drivers.

“It’s total insanity,” said Goldstein, fuming. “This is unreal.”

Stories like hers abound in New Jersey, where a 1984 effort at automobile insurance reform backfired and produced instead the highest rates in the nation. Although the system here is vastly different from the one in California, the sentiments are the same as the ones that fueled Proposition 103: People think they are paying too much for car insurance and they are demanding that something be done about it.

Proposition 103 “has been the real impetus” for the drive to cut rates in New Jersey, said Greg Lawler, a top aide to newly elected Democratic Gov. James J. Florio. “It showed that automobile insurance could be an issue people would mobilize behind.”

Florio has called the state’s insurance system “a national joke,” and his first act on taking office last month was to put forward a sweeping proposal that, on paper at least, would make good on his campaign promise to lower rates by 20%. He has called for action by April, and legislative hearings began last week.

In fact, even though California itself has yet to figure out how to implement the 20% rollback that its voters demanded in 1988, it has spurred at least a dozen other states to begin looking seriously at their systems of setting automobile insurance rates, said Charles Davis, executive director of the Conference of Insurance Legislators.

The arguments being made on both sides in New Jersey would sound familiar to Californians, and the fight has even drawn some of the same personalities who figured in the California movement. Jay Angoff, the counsel to the National Insurance Consumer Organization who helped write Proposition 103, is now chairman of a New Jersey group called Citizens Auto Revolt.

“If Proposition 103 had been defeated, they wouldn’t be in New Jersey,” said Robert A. Gaines, spokesman for the American Insurance Assn., a Washington-based trade organization. Gaines contended that Florio’s plan is a “house of cards,” which takes the simplistic but politically attractive route of scapegoating insurance companies. However, he also conceded that New Jersey was “fertile ground--absolutely fertile ground” for a consumer revolt.

Rates in New Jersey will always be high, because it is the most densely populated state in the country. With 141 cars per highway mile, traffic congestion is twice as high as the national average, and New Jersey has the country’s second-highest nonfatal accident rate. The only thing that keeps the fatality rate down, goes the morbid joke here, is the fact that drivers cannot get up enough speed on New Jersey’s jammed roadways.

But critics insist that New Jersey’s contorted insurance system is the real force pushing the typical motorist’s insurance costs to more than $1,000 a year. The average premium is $845 a year, plus a $225 state assessment for the bad drivers’ insurance pool.

“I can’t afford it. New Jersey has the worst insurance in the country,” said Wilbur Butler of Plainfield. His yearly premiums for two cars more than doubled, to $4,000 a year from $1,500, after his 19-year-old son had an accident that caused damages totaling $2,500.

“I never stop hearing about it,” said Daniel J. Dalton, who is an insurance agent in addition to being majority leader of the New Jersey Senate. “This is the one issue that really crossed economic lines. Whether you are rich, middle class or poor, people are outraged.”

Florio’s proposal promises to touch off a furious battle. The Democrats who control the Legislature have embraced it, and it has won support from many Republicans as well. However, insurance companies are outraged, businesses are uneasy about it and state GOP Chairwoman Kathleen A. Donovan has denounced it as “an elaborate shell game.”

Some consumer activists, meanwhile, say they have learned not to trust anything that comes to them touted as a cure for the insurance mess. “Do I look like a fool?” asked Martin Berkowitz, director of the Assn. for Fair Auto Insurance Rates in South Plainfield.

Automobile insurance is a problem that has vexed the two governors who preceded Florio over the last 16 years. Ironically, New Jersey’s current mess can be traced directly to its last major attempt at reform.

The most disastrous part of that effort was the establishment in 1984 of the state-run Joint Underwriters Assn., which was meant to insure drivers with bad records who could not find coverage elsewhere. It ultimately became the place where New Jersey insurers, seeking to turn a profit in what they say is a money-losing business, sent all but the very safest risks. At one point, more than half the state’s 4.3 million drivers--including many with perfect driving records--wound up in the JUA.

Insurance companies processed the JUA’s claims for the state, but had no responsibility for making the payments, and, therefore, had little incentive to challenge inflated bills. An audit conducted for the state by two private firms last year found errors and inefficiencies that had cost $908 million over the previous four years.

Meanwhile, the premiums paid by those in the JUA were held artificially low. The result was that the JUA has racked up a deficit of more than $3 billion, and every insured New Jersey car owner finds himself paying $225 a year just to support the program. Under the current setup, these fees are projected to rise another $80 this summer.

“The JUA is DOA (dead on arrival),” Florio declared. But getting rid of it requires paying off its huge debt. Florio plans to force insurers to pick up almost half the costs, $1.4 billion to be paid in higher taxes and assessments over the next seven years. Much of the remainder would be made up by increasing fees for automobile registration.

Once the JUA is out of business, Florio would establish a new pool for bad drivers, but this assigned risk plan would be allowed to include no more than 10% of the market.

He would also allow motorists to direct that their health insurance, not their automobile policy, pay medical costs incurred in accidents. Supporters of the proposal say that would result in savings, because medical insurers are more efficient in handling health claims. But businesses, which generally offer medical coverage as an employee benefit, worry that their premiums inevitably would rise.

“They say health insurers are more efficient. They’re more efficient because they don’t go to court,” said Gaines of the American Insurance Assn. If Florio’s proposal goes through, Gaines predicted, health insurers would be forced to raise their rates to account for a massive wave of new claims, many of which will wind up in litigation.

New Jersey took only a half-step toward a no-fault system in 1973. Motorists are entitled to have their claims paid by their insurers, whether or not they are to blame for an accident. But unlike other no-fault states, New Jersey allowed accident victims to sue for pain and suffering in any accident where their medical bills exceeded $200.

Instead of keeping claims out of court, it triggered an explosion of litigation--34,405 lawsuits in 1987. New Jersey tried to fix the problem last year, by offering motorists the option of having lower premiums if they gave up their right to sue in all but the most serious accidents. More than 80% chose the reduced premiums.

Still, Gaines said: “The system is only partially corrected. . . . If you are going to fix it, fix it. This is a house of cards.” The solution, he insisted, lies in offering more choices to consumers, allowing them to decide how much coverage they need and how much risk they are willing to assume. Insurers also say the state must address the high costs of medical care and auto repair.

Whatever the results of the reform effort, Angoff said that it demonstrates what is becoming a national mood. “What’s really happened is the insurance industry has been a very privileged and protected and unexamined industry,” he said. “People are beginning to realize they have had it very easy.”

Comparing Auto Insurance Premiums The average annual premium for a 1988 Ford Escort, driven by a 25-year-old single male, no accidents or violations, driven to and from work and less than 15,000 miles a year, licensed nine years. Coverage is bodily injury liability ($100,000 per person and $300,000 per accident), property damage liability limit of $25,000, $100 collision deductible and full comprehensive coverage. The Five Worst States New Jersey: $845.16 Massachusetts; 814.07 California: 800.82 Rhode Island: 780.55 Connecticut: 780.27 The Five Best Nebraska: $336.79 Iowa: 344.58 North Dakota: 352.42 South Dakota: 355.22 Idaho: 403.52 Source: National Assn. of Insurance Commissioners