This Is Why Cheap Car Insurance in NJ is Tough to Find

April 29, 2016

The National Association of Insurance Commissioners (NAIC) has published a new study regarding the cost of auto insurance by state in the U.S. The results of the study show that New Jersey drivers, on average, pay more for auto insurance than drivers in other states. So, why is cheap car insurance in NJ so tough to find? The story here isn’t just that New Jersey drivers pay more for auto insurance, but why they pay more. New Jersey, it seems, doesn’t do auto insurance the same as other states and for that reason, it’s hard to compare prices between New Jersey and other states.Welcome to New Jerseypay more for auto insurance, but why they pay more. New Jersey, it seems, doesn’t do auto insurance the same as other states and for that reason, it’s hard to compare prices between New Jersey and other states.

New Jersey Auto Insurance Is on the Rise

How expensive is “expensive”? New Jersey drivers pay an average of $1,301.52 per year for car insurance. That’s 43 percent more than the national average. The 2011 study moves New Jersey up from slot number three where they previously ranked below Washington D.C. and Louisiana. The average cost of auto insurance in New Jersey is up from a 2007 low of $1,227.63. The average U.S. driver paid $911.56 in 2011, which was a decrease from 2007 in which drivers paid roughly three dollars more.

Don’t let the date of the study fool you, insurance data lags by about two years, which is normal for the industry. The 2011 study is the most recent one available.

Why is New Jersey Auto Insurance so Expensive?

The NAIC came up with their $1,301.52 figure by factoring in what auto insurance companies charge in New Jersey, as well as what consumers are buying. The reason the number is so much higher is because consumers in the state, on average, are electing for higher coverage levels.

That means that you can get more affordable coverage in New Jersey, but the average consumer there feels it necessary to utilize higher coverage levels to protect themselves. This can be related to a number of factors, some of which are related to the fact that most of New Jersey is considered to be an urban area. Urban areas carry with them higher crime rates and higher numbers of auto accidents and subsequent insurance claims.

Another reason New Jersey auto insurance rates are higher than the national average is because the insurance agencies in that state allow for much higher Personal Injury Protection (PIP- a coverage that covers medical costs related to a vehicle accident) coverage limits, which in turn, drives up the cost of auto insurance. New Jersey allows for the second highest levels of PIP coverage in the U.S., second only to Michigan whose PIP limits can be as high as the buyer wants (provided they are willing to pay for the coverage). According to the study, New Jersey drivers carry on average the maximum levels of PIP coverage allowed within the state: $250,000.

How PIP and Insurance Fraud Affect Auto Insurance Rates

PIP as a concept is smart. It attempts to make sure that no one gets buried alive by hospital bills following an auto accident. To ensure the best possible coverage, New Jersey and auto insurers within that state agreed to raise the maximum limits of PIP coverage to $250k. That makes sense because prolonged need for hospital care and expensive tests, operations, etc. can really drive up medical costs. Both the state and the auto insurers were attempting to do their due diligence. Since no good deed goes unpunished, some people found ways to trick the system and capitalize on these very high deductible payouts. As more and more people defrauded insurers, the cost of insurance would rise in an effort to recapture the money the insurers were losing via fraudulent claims. Last year New Jersey enacted laws to counteract this and prevent further rate hikes. These laws didn’t stop fraud or lower rates, but they helped stabilize the car insurance industry in their state, ultimately saving drivers from further rate hikes at the hands of fraudsters.

The Biggest Factors in New Jersey Auto Insurance Costs

The data shows that the real issue behind New Jersey’s high insurance costs isn’t fraud (though it plays a part). The biggest issue is that New Jersey is almost entirely qualified as an urban area. Urban areas are treated differently from suburban and rural regions due to differences in crime, number of claims filed, and overall estimated risk. It’s more about how New Jersey just isn’t like the rest of the country.

Learn More About Auto Insurance

When it comes to auto insurance, there are a lot of variables, a lot of unfamiliar terms, and a whole lot of peculiarities – particularly when you consider that each state has its own insurance market. Our Auto Insurance Explainers can help sort it out for you, and make more educated decisions about your car insurance. Find car insurance quotes for NJ drivers.

Compare Car Insurance Quotes