New Jersey’s Car Insurance Reduction Act aims to lower rates and increase transparency

With auto insurance rates on the raise, New Jersey state lawmakers are acting to reform auto insurance with the introduction of A-5254, also known as the Car Insurance Reduction Act. Sponsored by Assemblywoman Heather Simmons, D-3, this legislation would impose significant changes to underwriting practices, rate calculations and fraud prevention to make car insurance more affordable and fairer for drivers across the state.

Key provisions

The bill would modify existing auto insurance laws by implementing stricter regulations on insurers while promoting transparency and cost reductions for safe drivers. Here’s what it entails.

Restricting certain underwriting factors

Currently, many auto insurers consider credit history, education level and occupation when determining insurance rates. A-5254 would prohibit insurers from using these factors. Proponents of the legislation argue that usage of these factors can disproportionately impact lower-income drivers—regardless of their actual driving record.

Additionally, insurers would be barred from placing drivers into different rating tiers solely based on minor traffic violations that result in four or fewer motor vehicle points.

Requiring greater transparency in rate calculations

Under the proposed law, insurers would provide policyholders with a detailed explanation of how their premium is calculated, including whether any nondriving-related factors were considered. This explanation would be available on the insurer’s website, making it easier for consumers to understand their insurance costs. Insurers also would be required to offer online tools to allow consumers to compare different coverage options and estimated premiums before purchasing a policy.

Encouraging safe driving with rate reductions

The bill, if passed, would mandate that auto insurers offer premium reductions for policyholders who demonstrate safe driving behaviors. Insurers would have the option to use telematics systems, such as mobile apps or in-car tracking devices, to monitor driving habits. Discounts would be determined based on actuarial data, ensuring that rate reductions align with actual risk reduction.

Strengthening insurance fraud detection

Insurance fraud remains a major issue in New Jersey—contributing to higher premiums for all drivers. To combat this, the bill would introduce new reporting requirements. If the bill becomes a law, the Department of Banking and Insurance would be required to work with the Office of the Insurance Fraud Prosecutor to publish a report on fraud detection efforts within 18 months of the bill’s enactment, with updates every three years. In addition, insurance companies would be required to provide data on fraud detection to these agencies, improving coordination and enforcement efforts under the New Jersey Insurance Fraud Prevention Act.

Implementation timeline

If passed, the Car Insurance Reduction Act would take effect 90 days after enactment and will apply to all auto insurance policies issued, executed, delivered or renewed after that date.