How NJ Auto Insurers Are Affected by Advances in Technology
In the 1970s, “no-fault” insurance laws were enacted in New Jersey and several other states in response to criticism of the lengthy and costly process of determining who was at fault when an accident occurred. .
No-fault insurance laws have sought to streamline the claims process. A key feature allowed insurers to pay for the medical treatment of their injured policyholders. This allowed for quick processing and supplier payment. NJ auto insurance policies offered up to $250,000 in coverage for medical care. Recent legislative changes now allow policyholders to choose less coverage for medical care.
Additionally, recent advances in technology are changing the way insurance customers choose coverage online. While customers are served by the ease, flexibility and pricing of policies through internet platforms, some negative consequences naturally follow. In this article, we discuss the changes, the consequences and the subsequent response of the participants and 3rd the parties to address these results.
By the 1960s, many more vehicles were entering American roads than in previous decades. Baby boomers were coming of age and more cars were being sold than ever before. A natural consequence was automobile accidents and therefore the necessary decision as to which party caused the collision.
Both policyholders and insurers criticized the process of going to the civil court system to settle disputes. In response, state legislatures passed laws designed to streamline the process, and in the 1970s many states passed policies allowing injured accident victims to recover damages from their own auto insurance policies.
Nearly half of the United States now has similar laws where policyholders are entitled to “benefits” from their own policies. This of course means that insurers are required to obtain more compensation, a fact which they have obviously used to pressure legislatures to impose certain restrictions on the right to sue for damages not only against the insurer but also against the offender.
One of the “compromises” made by the legislation was that aggrieved parties waived some of their rights to sue in certain circumstances.
New Jersey No-Fault Law and Enforcement
New Jersey’s no-fault laws have changed over the years. One of the most sweeping changes to the law occurred in 1998 with the passage of the Automobile Insurance Cost Reduction Act (“AICRA”). This change in law gave NJ residents the option of purchasing a standard or basic policy.
The standard policy looks a lot like a typical no-fault policy containing Personal Injury Protection (PIP) that pays for medical care (more on that in a moment); liability coverage for injury or property damage to others; and uninsured/underinsured coverage that kicks in if the offending driver has no or insufficient coverage.
A basic policy provides minimum coverage in certain areas such as personal liability, property damage and medical benefits. Because having auto insurance is mandatory, the purpose of the basic policy was essentially to provide an option for those who simply wanted to follow state mandates.
With respect to restrictions on the right to sue, an insured in New Jersey was and still is presented with a choice – to waive the right to sue for “non-permanent” injuries (those without medical evidence permanency objective) and have the premium reflect a save or retain the right to sue (zero threshold) and pay a much higher premium to offset the cost. Additionally, one of the things insurers had to negotiate was that victims would have PIP coverage worth $250,000 to pay for medical expenses.
NJ No-Fault Insurance Changes and Consequences
The AICRA amendments have been in effect for years. Since then, the Internet has changed the way policyholders interact with insurers when choosing coverage.
The Internet simplifies the sales process for many businesses. Insurance is no different. What is troubling about this rationalization is the lack of guidance users receive from insurance companies regarding their choice of coverage.
For example, a website asks you to choose between:
It’s not that the choices are misleading – they aren’t. However, apart from these descriptions, there is little explanation of their consequences. If you choose the “more affordable” option, you are taken to a screen that explains the coverages in more detail.
Do people read all the information?
Can they understand the language even if they decide to read it?
Could it be that the ease of choosing the cheapest option is too much to overcome?
Consider this description of a law firm in Maryland:
“PIP is easy to ignore, especially in the age of online insurance applications. That’s one box out of 200 that you can tick. The app will say something like “Give up the PIP and save $57”. The candidate clicks and saves $57… when in reality he has lost $2,500 if he has a car accident. Too many Maryland policyholders waive their PIP coverage. It’s a really good cover not to renouncer. “
Similarly, in the New Jersey Standard Coverage Selection Form, used by insurance companies as a questionnaire to write a policy application, the PIP Limits Selection Form actually lists the savings made by choosing PIP coverage at lower limit. Remarkably, no such comparison exists on the form for bodily injury/liability limit reductions.
In the past, an insurance agent was responsible for explaining the various coverages. A real human being who would answer questions illustrating real word scenarios involving accidents. This obviously allowed for more informed choices.
Today, much of the selling is done online. Many cost-conscious customers might only react to a price difference. Many can and simply choose the cheaper alternative. This could cause problems later if an accident occurs and a claim is made.
A potential problem with minimum coverages
Consider a situation where the insured has the minimum coverages for PIP – $15,000. The insured sustains a back injury and begins treatment. The ER visit totals $6,000 with 3-level CT scans revealing upper and lower back issues. The insured then follows up with an orthopedic surgeon who orders MRIs of the back, which amounts to an additional $2,500. Add a little physical therapy and the $15,000 PIP limits are exhausted within months.
None of this is a problem if the scans don’t reveal a major problem. A soft tissue injury is repairable in this scenario as long as the insured receives treatment and is on the verge of recovery. If scans reveal issues, such as multiple herniated discs and spinal cord impingement, treatment options become a tricky proposition.
The treatment is delicate because the benefits have disappeared. Now the aggrieved party has to look for other options – some of them can be expensive.
Answer to need
In response to the above, providers, lawyers and other market players have stepped in to meet the need of accident victims to obtain medical treatment. Here are some of these alternative payment methods.
letters of protection
Letters of Protection (LOPs) are agreements between an injured party’s attorney and a healthcare provider that medical bills will be “protected” by the proceeds of any settlement received. In exchange for the lawyer’s promise to honor the lien against the case, medical providers will perform a variety of treatments for the plaintiff, including surgery. Surgery is often a deciding factor in a claimant’s ability to obtain treatment, as normally the settlement value of the case is increased after the procedure.
Use existing health insurance to pay bills after PIP runs out
In some cases, claimants can use their own health insurance to pay for medical expenses in the event of an accident. In New Jersey, policyholders can choose which coverage is primary. However, some health insurance policies exclude car accident coverage. Standard health insurance limitations also apply. These include the need to pay deductibles, co-payments and sometimes coinsurance. Additionally, there may be limitations to the choice of medical provider. Some policies require physicians to be “networked”.
In many cases, litigation funding is used to pay for much-needed medical treatment. Originally used to bridge the gap between accidents and settlement, litigation funding was intended to alleviate the need for plaintiffs to accept low-cost settlement offers simply because they were in financial difficulty. Because lawsuit funding is the sale of a portion of the future proceeds of a personal injury case, they are sometimes used to pay for surgical or other procedures when there is no coverage available.
Technological advances and practical compromises
Technology has certainly made life more convenient over the years. Amenities exist today that were not in our collective consciousness 20 years ago. Consider being able to video-conference to someone on the other side of the world for FREE, when the toll charges for a phone call abroad a short time ago amounted to several dollars.
But technology can cut both ways. The ease with which insurance consumers can choose coverages that may or may not be in their best interest may be one such trade-off. Fortunately, market players (doctors, lawyers, litigation funding companies) step in and deal with the results that naturally arise. Free markets generally perform this function admirably.