Why is Cheap Car Insurance in NJ Hard to Find?

August 16, 2018

New Jersey City Skyline

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.

New Jersey Auto Insurance Is on the Rise

How expensive is “expensive”? New Jersey drivers pay an average of $1,265.69 per year for liability car insurance, making them the most expensive state in 2015. That’s 42.37% percent more than the national average of $889.01.

If you look at insurance rates for liability and comprehensive combined, New Jersey averages out at $1,382.79, 38.23% above the national average of $1000.38. This is right below Louisiana’s average of $1,405.36, ranking NJ as second highest premiums. Since 2011, New Jersey has steadily increased in cost by 7% which is still under the average increase of 11.8%.

Don’t let the date of the NAIC study fool you, insurance data lags by about two years, which is normal for the industry. The 2017 study is the most recent one available at this date. To analyze a bit more recent data, we ran an internal study below.

Internal Study: Average Premium from 2016 – 2018

By using our internal data, we were able to analyze thousands of NJ drivers that have bought through Compare.com in 2016 – 2018. We separated drivers that were previously insured and drivers that had let their insurance policies lapse. Diving further, we also compared full coverage against liability only.

Interestingly, we do see a decrease in rates from 2017 to 2018. Perhaps it’s a good time to compare rates in New Jersey? We’ll keep an eye on this to see if trends hold.

Attention: If you let your insurance lapse, your rates will almost certainly rise. Review the differences in liability and full coverage below.

Previously Insured Drivers: Liability Only vs. Full Coverage

Year Liability Avg. Premium Full Coverage Avg. Premium
2016 $1355.53 $2342.28
2017 $1421.76 $2438.05
2018 $1229.71 $2063.67

Drivers with Lapsed Coverage: Liability Only vs. Full Coverage

Year Liability Avg. Premium Full Coverage Avg. Premium
2016 $2317.51 $3733.41
2017 $2383.25 $4152.78
2018 $2228.22 $3665.40

How did we pull these numbers? – For this study we calculated the average quote for both previously insured & not previously insured New Jersey drivers that had only one car in the household and no existing claims, tickets, or accidents. We then compared their full coverage quotes against their liability only quotes.

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Why is New Jersey Auto Insurance so Expensive?

The NAIC came up with their $1,265.69 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 that 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 several factors, some of which are related to the fact that most of New Jersey is 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. The minimum state requirement for PIP coverage is $15,000.

How PIP and Insurance Fraud Affect Auto Insurance Rates

If you’re ever at-fault in a car accident (God forbid), you’ll be grateful for Personal Injury Protection. 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 a 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 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

All this being said, one key reason why New Jersey’s insurance costs are so high might simply be how urban the state is. Urban areas can be more expensive than suburban and rural regions due to higher crime rates, more claims filed, and an overall higher estimated risk. New Jersey’s density makes accidents and claims more likely, which can drive up premiums.

When it comes to finding the best price on a car insurance policy, you need to shop around! If you’re a New Jersey driver and your tired of overpaying on auto insurance, try out Compare.com now. We don’t make money unless you save money!

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