NJ Insurance Liability Law – Impacts for Movers
NJ Insurance Liability Law – Impacts for Movers
The new legislation raising the minimum amount of liability coverage to $1.5 million for commercial motor vehicles weighing more than 26,000 pounds, will have short- and long-term impacts for New Jersey movers, insurers and consumers.
In addition, it is unclear how this law impacts vehicles owned and registered outside of New Jersey, when they enter New Jersey. There is a conflict between the New Jersey law and the federal requirements of $750,000 minimum limit for interstate commerce for most vehicles. This new law could have far-reaching implications for all movers who travel into New Jersey. More to follow on this front for sure.
The industry faces a complex problem. It has been estimated that between 2-5% of Commercial Auto Liability claims exceed the $750,000 minimum limit. Most Risk Management experts would likely agree that this implies that the minimum limit is too low to protect the public. While higher insurance limits may be needed, the affordability of insurance is making it increasingly difficult for movers to buy insurance at the event the current minimum limits. Despite some temporary relief in insurance costs during the COVID-19 pandemic, Commercial Auto Liability rates have returned to average increases of over 10% across the industry. In spite of those increases, the insurance industry remains severely unprofitable, which will likely continue to drive even greater increases for the foreseeable future. The concern over rising insurance costs is compounded if movers must also buy higher limits in addition to paying higher rates.
Short-term Solutions
The vast majority of insurance companies do not offer policies with $1,500,000 limits. Commercial Auto Liability insurance is typically sold at a $1,000,000 limit. Limits can be increased with an Umbrella or Excess policy, which will also almost always be sold in $1,000,000 limit increments. Insurance companies need time to adjust to the new law in New Jersey and create filings supported by actuarial analysis to create either a $1,500,000 primary policy or a $500,000 Umbrella or Excess Policy. The process of developing a new product and like this and getting a filing successfully approved with the state can easily take several months or more, so the implementation date of July 16, 2024 will be difficult for the insurance industry to meet.
In the interim, most New Jersey movers will have the option of purchasing a $1,000,000 primary policy as well as a $1,000,000 Umbrella or Excess policy to satisfy the New Jersey requirement. While pricing can vary widely, the typical cost of an Umbrella or Excess policy is roughly 25 to 40% of the underlying $1,000,000 policy or transportation-related risk. Inevitably, this added business expense will need to be compensated for by additional revenue for New Jersey movers. Those costs are passed through to the consumers.
It is not fully clear yet how impacted transportation risks will evidence they have this new limit.
This legislation may have the effect of causing insurers that cannot or will not offer a compliant solution to pull out of New Jersey, pushing risks to assigned risk pools or surplus lines, further exacerbating the capacity and affordability issues. This is not unlike the situation in California, where increased regulatory requirements have caused some of the largest insurance companies to leave the state, and rumor has it that most insurance buyers will be facing even greater increases.
Potential Long-term Impacts
The cost of claims will go up. In many cases, the plaintiff’s bar seeks claim resolution within the defendant’s insurance limits because it is often much more difficult to recover amounts from the insured directly. Knowing that insurance limits for New Jersey movers are now higher, it is likely that the plaintiff’s bar will shift its expectations accordingly. And then there’s the trickledown effect: If a claim that used to settle at $1,000,000 now settles at $1,500,000, it is likely that the expected outcome for smaller claims, say $100,000, will follow the proportional increase and become valued at 50% more, or $150,000. The New Jersey consumer will pay for this, as we all rely on the transportation industry to move our goods.
Businesses will leave New Jersey and go to adjacent states where the requirements are not as burdensome. Under Federal interstate commerce regulation, out-of-state companies will likely conduct business in New Jersey with lower limits than the transportation industry requires elsewhere.
Encourage legislators to consider alternative approaches
Increases in limits are inevitable as the costs of claims will rise. Consider a grass roots effort to encourage legislators to adopt more reasonable approaches, such as:
- Stair-Stepping. Get everyone at the Federal Mandated Limit, which is $750,000 for interstate commerce (most will buy $1,000,000 anyway).
- Setting a reasonable implementation date, recognizing the lengthy process to change policies and practices, as well as the movers’ needs to raise rates to cover additional costs.
- Addressing the underlying issues associated with rising claims and costs: Inflation, supply chain issues, social inflation, nuclear verdicts, and rising medical costs are the main drivers of increasing costs of insurance.
Reduce your claims
- Implement technology that allows you to better monitor your drivers’ behavior. The use of ELDs and Cameras, even when not required, has proven to reduce claims frequency and severity.
- Conduct frequent tailgate meetings to talk about safe driving practices. Take advantage of the many online classes and videos to increase awareness and safety skills.
- Offer driver incentives around safety and technology usage to reduce the number of claims.
Sources
https://www.cnsinsures.com/news/what-if-minimum-insurance-premiums-increased-to-2-million/
Terri Moran
Insurance industry veteran Terri Moran leads the underwriting and operational strategies for the MOVER’S CHOICE program. Throughout her career, Terri has held roles in leadership, underwriting and marketing with national insurers. A staunch industry advocate, she has served as a member of the WSIA Internship Committee, working to attract young professionals to career opportunities.
In her spare time, in addition to enjoying her family, she is a Member and past Chair of the Board of Directors for the Surplus Lines Association of California.