Why the high cost of car insurance in New Jersey keeps going up | Adulting
EDITOR'S NOTE: This is the second in an occasional series that addresses the high cost of becoming an independent adult in New Jersey. The expenses of housing, dining, entertainment, paying back college loans and more make it difficult for new college graduates to leave home. Have a good idea for a story for this series? Email: Sportelli@northjersey.com.
Tim DeMuth says he's stayed pretty careful with his driving record. He drives an Acura TLX and lives in Clifton.
So when he got a letter from Geico saying the insurer was seeking a rate change of 18.7% — and 26.3% for full coverage — that came as a shock.
“It’s way more than inflation. It’s a pretty hefty increase,” said DeMuth, who works in marketing.
As he pondered what changes he would have to make in his spending habits — “just going to have to be a bit more careful as I go to the supermarket.”
But Geico’s increase is not an isolated incident, according to filings with the state Department of Banking and Insurance. Rather, it’s par for the course for an industry beset by inflation, an increase in the severity of accidents, and more expensive auto parts and costs of labor.
Critics have pushed back, decrying the hikes as corporate greed, and argued that the state could play more of a watchdog role with these increases.
“Nationally there have been profitability issues for auto carriers,” said Robert Sinclair, a spokesperson for AAA Northeast, based in New York.
The severity of crashes has been on the rise, Sinclair said, due to cars using more advanced parts and new technology, “with windshields and bumpers now having sensors, and the need for more exacting body work like paint that must be applied to precise standards so that sensors will operate properly.”
Geico, which did not respond to a request for comment, is not alone in its request to the state. Metromile Insurance Company is requesting a 63.1% increase, and did not respond to a request for comment.
Allstate Group is requesting a 29% increase. Vault is requesting a 21.9% increase and did not respond to a request for comment.
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In a call this past December, Allstate CEO Thomas Wilson attributed insurance increases to car parts and labor, accident severity, and the need to achieve a “target combined ratio,” that is, the target profitability and financial health of the company.
“We're going to keep increasing price until we get to our target combined ratio. We may end up overshooting a little bit, don't know,” Wilson said. “And it's not our goal to overshoot it. But we're not backing off at this point only because.”
In 2023, the average cost of car insurance was $1,754 for full coverage and $783 for minimum coverage according to Bankrate, a consumer financial services company.
“Typically, when multiple insurers ask for rate increases in an area, it does indeed indicate a trend, so you can probably expect to see more of that if it is already happening in New Jersey,” Bankrate told NorthJersey.com and The Record. “It does come down to how well the insurance company has fared in terms of claims and available funds, so it’s not a guarantee that all companies will apply to increase rates.”
Gary La Spisa, vice president of the Insurance Council of New Jersey, said in an email that “carriers have faced unprecedented increases in repair costs, which far outpaced overall inflation.”
While inflation began to cool off nationwide, according to the U.S Bureau of Labor Statistics, the cost of motor vehicle repairs still rose 19.7%.
“Inflation is still with us,” said Robert Passmore, vice president of the American Property Casualty Insurance Association. “Prices are still increasing across the board.”
Passmore pointed to trends like vehicle thefts and catalytic converter thefts that have driven up insurance claim expenses.
He also pointed to a press release last December by AAA highlighting a rise in dangerous driving behaviors like speeding, red-light running, drowsy driving and driving while under the influence of alcohol or cannabis. All of these habits, now on the rise, have driven up insurance costs, he said.
New state insurance regulations
In New Jersey, La Spisa said, drivers could see financial pain because of the state’s new insurance laws that went into effect last summer. They raise the minimum requirement for automotive liability insurance.
State law requires all drivers to have car insurance. The type and coverage for accidents varies, but a standard policy covers $15,000 for bodily injury per person, $5,000 for property damage and $30,000 for uninsured motorists.
The new law requires the standard car insurance policy to increase in January and then again in 2026. These changes would more than double the minimum requirement for a standard policy, from $15,000 now to $35,000 in 2026.
A minimum policy will require vehicle owners to maintain coverage of $25,000 for a crash that results in the injury or death of one person; $50,000 for a crash resulting in multiple injuries or death; and $25,000 for a crash with no injuries. All liability policies also include payment for all or part of what a driver is legally entitled to recover as damages from drivers of uninsured and underinsured vehicles.
“While it is too soon to measure exactly how much of the increases should be attributed to the legislation, we are closely monitoring changes in loss experiences,” La Spisa said.
Skepticism about insurance greed abound
Michael DeLong, a research and advocacy associate with the Consumer Federation of America, was skeptical of the reasoning from the insurance and auto industry.
Rates are going up "because of insurance company greed (greedflation) and a lack of effective consumer protections in most states,” he said in an email. “The companies are trying to scoop up as much as they can.”
“What we are seeing from insurance companies looks a lot like excuses to justify future rate hikes based on past inflation,” he said. “They are pushing rates far above current inflation.”
DeLong said agencies like the Department of Banking and Insurance can, but won’t, block rate hikes requested by many insurance companies.
“They should be carefully looking at insurance rate filings and deciding if they’re inadequate, excessive or unfairly discriminatory,” DeLong said. “They shouldn’t hesitate to reject them or modify them. Right now, they don’t do very much rejection at all.”
Dawn Thomas, a spokesperson for the state Department of Banking and Insurance, responded that the agency "reviews rates and rating systems that are filed by auto insurers offering policies in New Jersey to ensure compliance with state law."
"Any rate change must be reasonable, adequate, and not unfairly discriminatory," she continued, or it will be disapproved.
How can I save on my car insurance bill?
Financial education website Investopedia said drivers can take advantage of “multi-car discounts,” if they are related by blood or marriage.
Insurance companies also offer discounts for taking a defensive driving course, though it’s a good idea to check with your insurance company before you sign up for the class, Investopedia said.
“Consider shopping around and comparing quotes from several companies if your policy is about to renew and the annual premium has gone up markedly,” Investopedia added.
Other breaks include good student discounts, homeowner discounts, and “student away-at-school discounts,” since “students at college who leave their cars behind will naturally be driving less than usual,” said personal finance website NerdWallet.
You might consider increasing the deductible, NerdWallet said, as it would save on collision and comprehensive insurance.
Or, if you don’t drive a lot, you could consider usage-based or pay-per-mile insurance, NerdWallet added. That involves installing an app on your phone or a small device in your car that transmits the data to your insurance company.
This article originally appeared on NorthJersey.com: Why is my car insurance rate going up in New Jersey?
