Tier Rating - History
In June 1997, state Legislators approved, and Governor Christie Whitman signed into law
legislation that eliminated state mandated eligibility surcharges. Under the surcharge
system it was not uncommon for drivers with minor violations to pay hundreds or even
thousands of dollars a year in surcharges for a three-year period. The inequity in the
surcharge system was that drivers with good, long-term driving records were subject to
heavy penalties.
The new legislation provided that insurers use tier systems to determine rates. Tier
rating systems look at much more than DMV violations. Insurers now consider a number of
risk characteristics, including driving record, claims history, years of driving
experience, number of years with the company, vehicle type and coverage limits when
determining a driver's tier placement. Other factors, like age, gender, and marital status
may also impact on an individual's rate within a specific tier. Companies began
implementing their tier systems in October 1998.
The legislation included two very important provisions designed to protect the New
Jersey insured. First, under New Jersey's new tiered rating system, in the absence of all
other applicable risk characteristics, drivers with six or fewer motor vehicle points must
be placed in a company's standard tier. Second, each company's tiered rating plan must be
revenue neutral. This means insurance companies collect the same total premium that they
did under the old system.
Tier Rating - The Result
The result is a return to competition. Companies can now position themselves to compete
for customers with the risk characteristics that they believe are the most favorable.
Creativity and innovation will now be reintroduced to the system. Insureds will now find
price differences may vary widely between companies depending on his or her driving
characteristics. Consumers now more than ever have an incentive to shop for better rates.
The bottom line is insurance premiums will now more accurately reflect the risk each
driver represents. Good drivers get the best rates. Tiered rating is a step towards
restoring a healthy and competitive insurance marketplace.
Tier Rating - What it's not
In the Spring of 1999 the Automobile Insurance Cost Reduction Act (AICRA)
will begin. The legislation includes dramatic changes to the
state's auto insurance system. These changes include allowing
consumers more choice in the type and amount of coverage they
select. The legislation also provides significant measures
to reduce the cost of providing auto insurance. These cost
reduction measures are aimed at controlling the medical costs
and fraud that auto insurers pay for each year. These changes,
in part, will support a mandatory automobile insurance rate
reduction of approximately 15 percent.
Tier Rating - IFA's System
IFA's tier rating system is designed to reward good drivers
who have been loyal to our company. Drivers who qualify for
our lowest tier and have been with IFA for at least one year
receive a 10% discount. If you qualify and have been with
IFA for two years you receive a 15% discount. Drivers who
qualify and have been with IFA for at least three years receive
a 25% discount from our standard rate. All preferred tiers require that the vehicle maintain comprehensive and collision coverage.
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