New Jersey's car insurance market: reforms and rating rules

No single law makes New Jersey expensive. The state's auto premiums sit well above the national figure because of three things that pull in the same direction: some of the most crowded roads in the country, a no-fault system that pays generous medical benefits whoever caused a crash, and a regulatory history that closed its assigned-risk pools and moved drivers into the regular market under tight rate and underwriting rules. In the NAIC's report on 2023 data, New Jersey's average expenditure per insured vehicle was $1,573.21, the fifth highest of the 50 states and the District of Columbia, against a national figure of $1,281.92.

This article explains each piece without arguing that the state should have chosen differently. Where a rule changes what a driver pays or can recover, it says so. Where the evidence cannot separate regulation from geography, it says that too.

Where New Jersey sits in the numbers

The National Association of Insurance Commissioners publishes the most consistent state comparison. All figures below come from the NAIC's 2022/2023 Auto Insurance Database Report (published 2025), except where noted.

Two cautions apply. First, the NAIC itself says that direct comparisons between states should be treated with a high degree of caution, because the averages ignore differences in limits, deductibles and driver mix. Second, the ranking is not new. By my calculation from the same report's Table 4, New Jersey's average expenditure was 29 percent above the national figure in 2019 ($1,390.44 against $1,075.08) and 23 percent above it in 2023.

The NAIC's own explanation of what moves premiums is useful here. It notes that high-premium states tend to be highly urban, with higher wage and price levels, and greater traffic density. New Jersey scores high on all three. For the regional pattern, see Why dense Northeast and Mid-Atlantic states cost more to insure, and for a within-state version of the same effect, Why Detroit and Philadelphia pay far more than their states.

Choice no-fault: PIP and the right to sue

New Jersey is a no-fault state with a twist. The NAIC's state-law table labels it "No-fault" with a threshold of "Choice or Verbal." Each buyer picks how much medical coverage to carry and whether to keep the full right to sue. The state's own 2026 Auto Insurance Buyer's Guide describes the pieces.

Personal injury protection

personal injury protection (PIP) is the medical coverage that pays for your injuries, and those of others on your policy, regardless of fault. The Department of Banking and Insurance says it has two parts: treatment costs and certain other expenses such as lost wages and replacement help at home. On a Standard policy, PIP limits run from $15,000 up to $250,000 or more, and the Department's chart lists $250,000 as the usual choice. Even a low limit does not cap everything: for permanent or significant brain or spinal cord injury, disfigurement and some trauma-center treatment, the policy pays up to $250,000 for medically necessary care.

Deductibles and the health-insurance option change the price:

• PIP deductibles of $250 (standard) up to $2,500. Whatever you choose, there is a 20 percent copayment on medical expenses between the deductible and $5,000.
• Health care primary. You can name your own health insurer as the first payer for accident injuries. The guide says Medicare and Medicaid cannot be used for this option, and tells buyers to check with their health insurer first. See New Jersey PIP: the health-insurance-primary choice for the trade-offs.

The Department gives a worked example. Sam has a $250 deductible and $10,000 in medical bills: he pays the $250 plus $950 (20 percent of the remaining $4,750 of the first $5,000), and the insurer pays $8,800. Jane has a $2,500 deductible: she pays $2,500 plus $500, and the insurer pays $7,000. Jane's PIP premium is about 25 percent lower, and she carries more of the first $5,000 herself.

The lawsuit option

Under N.J.S.A. 39:6A-8, a buyer elects one of two tort options. Under the limitation on lawsuit option, often called the verbal threshold (verbal threshold), you give up the right to sue for pain and suffering unless the injury involves death, dismemberment, significant disfigurement or scarring, a displaced fracture, loss of a fetus, or a permanent injury. An injury is permanent when the body part or organ has not healed to function normally and will not heal to function normally with further medical treatment. Under the no limitation option, you keep the right to sue for pain and suffering for any injury.

Four details change how this plays out:

1. It does not affect medical bills or wages. The choice only governs "pain and suffering," or non-economic loss. Economic losses are paid through PIP or can still be claimed.
2. It covers the household. The choice applies to you, your spouse, your children and relatives living with you who are not covered under another auto policy.
3. A physician must certify. In the 2003 text of the statute, a plaintiff under the limited option must provide a certification from a treating or referred physician, within 60 days after the defendant's answer, that the injury meets the list, based on objective clinical evidence. The 2003 version of the statute allowed one extension of up to 60 days for good cause. Statutes get amended, so confirm the current text with an attorney.
4. The default is the limit. The Buyer's Guide warns that the limited option is imposed by law if no choice was made on the coverage selection form.

The practical effect: the limited option costs less because it removes claims. The Department's policy-options chart lists it under what most drivers choose. The cost is real if you are hurt by someone else, so the decision belongs to the whole household. Limited tort vs full tort: what the choice saves in PA and NJ compares New Jersey with Pennsylvania, and Choice no-fault: New Jersey, Pennsylvania and Kentucky covers all three states that use the model.

A related rule is worth knowing. Under N.J.S.A. 39:6A-4.5, as it read in 2003, a person who is required to carry the coverage but does not has no cause of action for economic or noneconomic loss from an accident while driving the uninsured car, and a person convicted of drunk driving in connection with an accident has none either. See no pay, no play laws for how other states handle this.

Standard, Basic and Special policies

New Jersey offers three tiers of policy. The Buyer's Guide lays them out.

The Department says the Basic policy "usually costs significantly less than a Standard Policy" and meets the state's minimum insurance requirements, but suits people with few family responsibilities and few assets to protect. A driver on a Basic policy has no bodily injury liability coverage by default. If that driver injures someone, the claim is against the driver personally.

The Special Automobile Insurance Policy

The third option is narrower. The Special Automobile Insurance Policy (SAIP), sometimes called "dollar-a-day" insurance, is a medical-coverage-only policy for drivers enrolled in federal Medicaid with hospitalization. The Legislature created it in 2003 (P.L. 2003, c. 89, section 45), stating its intent as to help certain low-income people and encourage greater compliance with the mandatory insurance requirements. According to the Department's SAIP page, which I read in November 2026 and which carries no date:

• It costs $365 a year ($360 if paid up front).
• It covers emergency treatment immediately after an accident and treatment of serious brain and spinal cord injuries up to $250,000, plus a $10,000 death benefit.
• It does not cover outpatient care that Medicaid already covers, damage you cause to other people or property, or damage to your own car.
• It is one car per policy, and it does not cancel if Medicaid ends mid-term, though the benefits stay limited.

That last bullet matters in a crash. A driver on SAIP who causes an accident is personally responsible for the other party's injuries and property damage. For other state programs with the same low-cost goal, see state low-cost auto insurance programs.

From assigned risk to the voluntary market

The market New Jersey has now was built by unwinding an older one. The 2003 law's own findings tell the story in outline: the New Jersey Automobile Full Insurance Underwriting Association, created in 1983 (P.L. 1983, c. 65), and the Market Transition Facility, created by a 1990 law (P.L. 1990, c. 8), had both "ceased issuing private passenger automobile insurance policies" and were running off remaining claims. The Legislature moved their remaining functions to the New Jersey Property-Liability Insurance Guaranty Association.

Two features of the rules that replaced them stand out.

A take-all-comers rule, with a sunset. From April 1, 1992, every insurer had to provide coverage to "eligible persons" and could not refuse to insure, renew or limit coverage for an eligible person who met its filed underwriting rules. The 2003 amendments let insurers invoke growth limits in a territory (5 percent for 2004, stepping down to 1 percent for 2008) and made the requirement inoperative on January 1, 2009, with a path for the commissioner to restore it by order if a hearing found no competitive market. The law presumed a competitive market if the assigned-risk plan insured under 10 percent of private passenger exposures. That is how the statute read when enacted in 2003, so check whether later amendments changed it.

Assigned risk for the highest-risk drivers. Today the residual market is the Personal Automobile Insurance Plan (PAIP). The Department's consumer guide says a driver with seven or more "insurance eligibility points" in the past three years may not be considered eligible for the voluntary market, though not every voluntary insurer turns such drivers away. PAIP is a clearinghouse, not an insurer: it assigns each driver to a company, the state standardizes the rates, and those rates "may also be substantially higher" than voluntary rates. Insurers assign points for violations, suspensions and at-fault accidents, and three to every newly licensed driver. An at-fault accident, if you are equally or more at fault than any other driver and your insurer pays $1,000 or more, brings five points. Points drop off after the three-year look-back. A lapse in coverage of more than 30 days can also push a driver toward the plan.

The shift shows in the NAIC's exposure counts. In 2022 the residual market earned 680 car-years of private passenger liability in New Jersey, against 5,857,074 in total, about 0.01 percent. In 2020 the residual figure was 1,489. The same table shows California at about 0.08 percent and the nation at about 0.04 percent. assigned risk plans: insurance of last resort explains how these plans work in general.

Rating rules and rate regulation

The NAIC's rate-filing table lists New Jersey as "Prior Approval" for private passenger auto in 2020, 2021, 2022 and in its current column, which means insurers need regulatory approval before using new rates. Industry-commissioned research by Milliman for the National Association of Mutual Insurance Companies (February 2024) measured the time between filing and disposition for each state's top 10 insurers: New Jersey averaged 34 to 43 days from 2013 to 2018 and rose to 108 days in 2022. Note the sponsor; the figures come from S&P Global data. For how approval differs from other methods, see prior approval vs file-and-use: do regulated states pay more or less?.

Within that system, the rules about sorting drivers are specific.

• Tier rating, since 1998. The Automobile Insurance Cost Reduction Act of 1998 created tier rating. Insurers place drivers in rating tiers using driving record, years of experience, vehicle type, coverage limits, claims and credit history. Age, gender and marital status may affect the rate within a tier. Insurers choose their own criteria but must show they are not arbitrary, capricious or unfairly discriminatory and are reasonably based on loss experience. Because criteria differ, two insurers can place the same driver in different tiers.
• Limits on penalizing a few points. A 2003 amendment to N.J.S.A. 17:29A-46.2 says no underwriting rule based on motor vehicle violations may put a named insured in anything but the standard tier for the insured's territory solely for accumulating four points or less. Another bars assigning a risk to a rating plan on the basis of territory or any surrogate for it.
• Insurance scores, with limits. The Department says some insurers use an credit-based insurance score, but insurers may not use it to deny, cancel or non-renew coverage, and may not use it for SAIP or Basic policies.
• Territory still counts. The Department's guide says claims filed by policyholders in your territory affect the rates charged, and moving to a new territory can change your premium (territory rating).

What this means when you buy

Because the design leaves so many choices to the buyer, the order you decide in matters. A sensible sequence:

1. Decide the lawsuit option first, with your household. It changes price and rights for everyone covered by the choice.
2. Pick PIP limit and deductible, and decide whether to name your health insurer as primary after confirming it will cover auto injuries.
3. Set liability limits above the minimum if you have assets. The Standard policy allows up to $250,000 per person for bodily injury; the Basic policy's property damage limit is $5,000, which a single modern car can exceed.
4. Compare tiers by asking each insurer what tier you land in and why. The Department says insurers' tier systems and rates can vary considerably.
5. Check your eligibility points if you have recent violations or an at-fault accident, since seven can move you toward assigned risk.

Look up limits for other states with state car insurance requirements lookup, and see the state record at New Jersey.

Common questions

Is New Jersey the most expensive state for car insurance?

No. By the NAIC's 2023 average expenditure it ranked fifth, behind Florida ($1,864.63), Louisiana ($1,754.03), New York ($1,752.55) and the District of Columbia ($1,676.99). Rankings shift by measure: on combined average premium, New Jersey ranked eighth.

Does regulation make New Jersey expensive?

The evidence I opened cannot say. New Jersey is both heavily regulated and unusually dense, and the NAIC's explanation of premium differences leads with density and traffic. Research on rate regulation across states is mixed and confounded; see prior approval vs file-and-use: do regulated states pay more or less?.

What happens if I never make a lawsuit choice?

The Department's guide says the limited right to sue is imposed by law if no choice was made on the coverage selection form, and that you cannot sue the insurer or agent over that outcome.

Can an insurer refuse me because of my record?

Insurers may apply filed underwriting rules. Under the Department's guidance, seven or more eligibility points in three years can make a driver ineligible for the voluntary market, and some insurers will direct them to PAIP. Not all do, so shopping matters.

Key takeaways

• New Jersey ranked fifth of 51 on the NAIC's 2023 average auto expenditure ($1,573.21 against $1,281.92 nationally), and the NAIC ties high premiums to urban density, income and traffic, all of which are high here.
• The state's choice no-fault design lets buyers pick PIP limits up to $250,000 and a limited or unlimited right to sue; the limited option is the default if you make no choice.
• The Basic policy has no bodily injury liability by default, and the Special policy for Medicaid recipients covers only the policyholder's medical needs, so neither protects other people you injure.
• The old assigned-risk entities are in run-off, and the NAIC counts about 0.01 percent of 2022 liability car-years in the residual market.
• Rate approval is required, tier rules constrain how a few points can be used, and credit scores cannot be used to cancel or refuse renewal.