New Jersey New Jersey Automobile Insurance Automobile Insurance

Risk ExchangeRisk Exchange

The New Jersey Automobile Insurance Risk The New Jersey Automobile Insurance Risk Exchange (NJAIRE) was created by statute Exchange (NJAIRE) was created by statute more than 20 years ago. Its creation resulted more than 20 years ago. Its creation resulted from New Jersey’s dual liability threshold, from New Jersey’s dual liability threshold, which caused potential premium inequity to a which caused potential premium inequity to a carrier. This occurs when a limited threshold carrier. This occurs when a limited threshold insured becomes involved in a loss with an insured becomes involved in a loss with an unlimited threshold insured. It results in the unlimited threshold insured. It results in the limited threshold carrier essentially paying an limited threshold carrier essentially paying an unlimited threshold claim, usually with a higher unlimited threshold claim, usually with a higher payout, when they only received premium for payout, when they only received premium for less expensive coverage.less expensive coverage.

Therefore, the purpose of NJAIRE is to Therefore, the purpose of NJAIRE is to restore premium equity to New Jersey restore premium equity to New Jersey

carriers when their limited lawsuit carriers when their limited lawsuit threshold policyholders incur losses with threshold policyholders incur losses with

claimants who carry unlimited lawsuit claimants who carry unlimited lawsuit threshold liability coverage.threshold liability coverage.

NJAIRE is governed by a 12 member Board of NJAIRE is governed by a 12 member Board of Directors and the New Jersey Department of Directors and the New Jersey Department of Banking and Insurance. All members must be Banking and Insurance. All members must be residents of New Jersey. Nine members are residents of New Jersey. Nine members are nominated by the Governor, including eight nominated by the Governor, including eight members who are affiliated with New Jersey members who are affiliated with New Jersey insurers. They must submit to legislative insurers. They must submit to legislative disclosure, comply with senatorial courtesy and disclosure, comply with senatorial courtesy and be confirmed by the New Jersey Senate. Three be confirmed by the New Jersey Senate. Three additional members are directly appointed by additional members are directly appointed by the Governor, the Senate President, and the the Governor, the Senate President, and the Assembly Speaker.Assembly Speaker.

The NJAIRE Board represents many phases of The NJAIRE Board represents many phases of public and insurer perspectives. Board members public and insurer perspectives. Board members come from actuarial, agency, claim, legal, come from actuarial, agency, claim, legal, operations, regulatory, statistical and operations, regulatory, statistical and underwriting backgrounds, allowing for a diverse underwriting backgrounds, allowing for a diverse group of individuals. The current Board of group of individuals. The current Board of Directors consists of two attorneys from Directors consists of two attorneys from prestigious New Jersey law firms, members from prestigious New Jersey law firms, members from AAA-Mid-Atlantic, Allstate, American AAA-Mid-Atlantic, Allstate, American International Group, Chubb Group, Highpoint, International Group, Chubb Group, Highpoint, New Jersey Manufacturers, State Farm, and public New Jersey Manufacturers, State Farm, and public member Peter DiGiambattista. The New Jersey member Peter DiGiambattista. The New Jersey Department of Banking and Insurance is an ex-Department of Banking and Insurance is an ex-officio member of the Board. officio member of the Board.

It’s important to note that Board members from It’s important to note that Board members from insurance companies do insurance companies do notnot represent their represent their company. They represent all member company. They represent all member companies of their trade association. New companies of their trade association. New Jersey carriers belong to either 2 trade groups; Jersey carriers belong to either 2 trade groups; the Property Casualty Insurers Association the Property Casualty Insurers Association (PCI) or the American Insurance Association (PCI) or the American Insurance Association (AIA) or they may not belong to a trade group, (AIA) or they may not belong to a trade group, and are considered Non-affiliated. Non-and are considered Non-affiliated. Non-affiliated members represent all New Jersey affiliated members represent all New Jersey non-affiliated insurers.non-affiliated insurers.

NJAIRE Board of DirectorsNJAIRE Board of Directors

• Frank Coscia, Esq. (Gallo, Geffner, Fenster)Frank Coscia, Esq. (Gallo, Geffner, Fenster)• Thomas DeFalco, (New Jersey Manufacturers)Thomas DeFalco, (New Jersey Manufacturers)• Stephen Doyle (American International Group)Stephen Doyle (American International Group)• Peter DiGiambattista, (Public Member)Peter DiGiambattista, (Public Member)• Peter Eckhardt (Chubb)Peter Eckhardt (Chubb)• Richard Hubschman, Esq. (Hubschman and Roman)Richard Hubschman, Esq. (Hubschman and Roman)• Mark Keenan (Allstate)Mark Keenan (Allstate)• Thomas Myers, Chairperson (High Point)Thomas Myers, Chairperson (High Point)• Sam Sackey, Ex-Officio Sam Sackey, Ex-Officio (New Jersey Department of Banking & Insurance)(New Jersey Department of Banking & Insurance)• Russell Shaner (AAA/Mid-Atlantic)Russell Shaner (AAA/Mid-Atlantic)• David Ziemer (State Farm)David Ziemer (State Farm)

NJAIRE also has several standing committees, NJAIRE also has several standing committees, chaired by Board members who bring personal chaired by Board members who bring personal and business related expertise to their committee. and business related expertise to their committee.

The Actuarial Committee is chaired by Tom The Actuarial Committee is chaired by Tom DeFalco, who is an Actuary and Officer with New DeFalco, who is an Actuary and Officer with New Jersey Manufacturers Insurance Company. This Jersey Manufacturers Insurance Company. This committee oversees assessment percentages for committee oversees assessment percentages for each accident year, as well as establishing annual each accident year, as well as establishing annual interest, closeout years and addressing other interest, closeout years and addressing other actuarial issues.actuarial issues.

The Audit committee is chaired by Larry Weiss from The Audit committee is chaired by Larry Weiss from Palisades Safety and Insurance management Palisades Safety and Insurance management Corporation. This committee works closely with our Corporation. This committee works closely with our external auditors to assure that audit guidelines are external auditors to assure that audit guidelines are proper and current, and audit compliance is proper and current, and audit compliance is achieved by carriers.achieved by carriers.

The Finance and Investment Committee is chaired by The Finance and Investment Committee is chaired by attorney Frank Coscia, assuring that NJAIRE funds attorney Frank Coscia, assuring that NJAIRE funds receive safe and optimum yield through several receive safe and optimum yield through several financial institutions.financial institutions.

The Insurance and Contracts Committee is chaired The Insurance and Contracts Committee is chaired by Mark Keenan from Allstate Insurance Company. by Mark Keenan from Allstate Insurance Company. This committee oversees vendor and policy contracts.This committee oversees vendor and policy contracts.

The NJAIRE office is located in Franklin and is The NJAIRE office is located in Franklin and is operated by General Manager Donald Foth. operated by General Manager Donald Foth. Don is a former long term Board member and Don is a former long term Board member and officer, now retired from State Farm Companies.officer, now retired from State Farm Companies.

M. Paige Berry is NJAIRE General Counsel. M. Paige Berry is NJAIRE General Counsel. Ms. Berry is an exceptional attorney associated Ms. Berry is an exceptional attorney associated with the law firm of Saul Ewing, located in with the law firm of Saul Ewing, located in Princeton.Princeton.

New Jersey statutes mandate NJAIRE New Jersey statutes mandate NJAIRE compliance by every auto insurer licensed to compliance by every auto insurer licensed to conduct business in New Jersey, and it’s been conduct business in New Jersey, and it’s been our experience that some carriers do not our experience that some carriers do not meet NJAIRE standards. This issue became meet NJAIRE standards. This issue became sufficiently evident to the New Jersey sufficiently evident to the New Jersey Department of Banking and Insurance, and Department of Banking and Insurance, and resulted in the issuance of a compliance resulted in the issuance of a compliance reminder from Commissioner Bakke on reminder from Commissioner Bakke on July 26, 2004.July 26, 2004.

The NJAIRE Plan of Operations and Procedure The NJAIRE Plan of Operations and Procedure Manual contain specific reporting requirements Manual contain specific reporting requirements that are not present in any other state. This can that are not present in any other state. This can result in a lack of understanding about NJAIRE result in a lack of understanding about NJAIRE requirements, possibly as a result of staff requirements, possibly as a result of staff turnover, or multi-state responsibilities.turnover, or multi-state responsibilities.

The current NJAIRE Plan of Operations and the The current NJAIRE Plan of Operations and the separate Procedure Manual are written in an separate Procedure Manual are written in an understandable format, and are available in both understandable format, and are available in both paper and on the NJAIRE website.paper and on the NJAIRE website.

ISO serves as the Central processor for NJAIRE. ISO serves as the Central processor for NJAIRE. ISO handles the complexities of :ISO handles the complexities of :

Reported data from each carrierReported data from each carrier

Assessments collected from applicable carriersAssessments collected from applicable carriers

Reimbursements paid to appropriate carriersReimbursements paid to appropriate carriers

Annual cash settlement to all carriersAnnual cash settlement to all carriers

Website creation and maintenanceWebsite creation and maintenance

NJAIRE Budget and expensesNJAIRE Budget and expenses

. . . . . . and a myriad of other tasks that keeps and a myriad of other tasks that keeps an ISO team busy 100% of the time.an ISO team busy 100% of the time.

NJAIRE maintains contracts with two external auditors. NJAIRE maintains contracts with two external auditors. Annually, the financial records of NJAIRE are reviewed Annually, the financial records of NJAIRE are reviewed by Withum, Smith and Brown, a CPA firm that conducts by Withum, Smith and Brown, a CPA firm that conducts financial audits. financial audits.

Through its statutory authority NJAIRE requires Through its statutory authority NJAIRE requires compliance audits of every applicably licensed New compliance audits of every applicably licensed New Jersey insurance company. Compliance audits are Jersey insurance company. Compliance audits are conducted by AIPSO, the parent organization of most conducted by AIPSO, the parent organization of most residual market mechanisms in the United States. residual market mechanisms in the United States. AIPSO’s Residual Markets Audit Services (RMAS) has an AIPSO’s Residual Markets Audit Services (RMAS) has an exceptional history of conducting compliance audits exceptional history of conducting compliance audits within the industry, using many industry retirees who are within the industry, using many industry retirees who are very competent in their audit specialty. very competent in their audit specialty.

NJAIRE audits encompass much more than the residual NJAIRE audits encompass much more than the residual market, and AIPSO has tailored NJAIRE audits to fit market, and AIPSO has tailored NJAIRE audits to fit NJAIRE requisites. Each year, the NJAIRE Board of NJAIRE requisites. Each year, the NJAIRE Board of Directors selects 10 carriers to receive NJAIRE audits to Directors selects 10 carriers to receive NJAIRE audits to ascertain compliance. Each audit is conducted in a ascertain compliance. Each audit is conducted in a formal atmosphere. It requires advance data be formal atmosphere. It requires advance data be provided to enable the auditors to select specific claim provided to enable the auditors to select specific claim records for review. Audits are conducted at the carrier’s records for review. Audits are conducted at the carrier’s office, with five auditors present, usually for one week. office, with five auditors present, usually for one week. Subsequent to the audit, there is communication between Subsequent to the audit, there is communication between AIPSO and the carrier before a final report is submitted AIPSO and the carrier before a final report is submitted to the Board. to the Board.

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The Board reviews every audit, in detail, taking The Board reviews every audit, in detail, taking action as appropriate, including penalty assessment action as appropriate, including penalty assessment when carriers fail to achieve NJAIRE compliance. when carriers fail to achieve NJAIRE compliance.

Feedback from AIPSO and ISO has prompted Feedback from AIPSO and ISO has prompted educational seminars that focus toward the actuarial, educational seminars that focus toward the actuarial, claim, statistical, or other areas in your companies claim, statistical, or other areas in your companies that are responsible for maintaining and reporting that are responsible for maintaining and reporting NJAIRE information. Two seminars were conducted NJAIRE information. Two seminars were conducted in 2005 and single seminars were presented in 2006 in 2005 and single seminars were presented in 2006 and 2007. The next seminar is scheduled for and 2007. The next seminar is scheduled for Thursday, November 13, 2008.Thursday, November 13, 2008.

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NJAIRE recommends that carriers maintain an NJAIRE recommends that carriers maintain an understanding of NJAIRE requirements, especially in understanding of NJAIRE requirements, especially in areas where staff turnover occurs. Self-audits are areas where staff turnover occurs. Self-audits are also recommended to assure ongoing compliance.also recommended to assure ongoing compliance.

Contact information is available on this website for Contact information is available on this website for anyone who needs additional information. The anyone who needs additional information. The Board of Directors meets four times annually, and Board of Directors meets four times annually, and carriers are welcome to attend Board meetings as carriers are welcome to attend Board meetings as well as the annual meeting which is held in well as the annual meeting which is held in conjunction with the November 13, 2008 Board of conjunction with the November 13, 2008 Board of Directors meeting. Directors meeting.

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