New Jersey Automobile Insurance Risk Exchange

1
New Jersey Automobile Insurance Risk Exchange
2
The New Jersey Automobile Insurance Risk Exchange
(NJAIRE) was created by a 1984 statute. Its
creation resulted from New Jerseys dual
liability threshold, which caused potential
premium inequity to a carrier. This occurs when
a limited threshold insured becomes involved in a
loss with an unlimited threshold insured. It
results in the limited threshold carrier
essentially paying an unlimited threshold claim,
usually with a higher payout, when they only
received premium for less expensive coverage.
3
Therefore, the purpose of NJAIRE is to restore
premium equity to New Jersey carriers when their
limited lawsuit threshold policyholders incur
losses with claimants who carry unlimited lawsuit
threshold liability coverage.
4
NJAIRE is governed by a 12 member Board of
Directors and the New Jersey Department of
Banking and Insurance. All members must be
residents of New Jersey. Nine members are
nominated by the Governor, including eight
members who are affiliated with New Jersey
insurers. They must submit to legislative
disclosure, comply with senatorial courtesy and
be confirmed by the New Jersey Senate. Three
additional members are directly appointed by the
Governor, the Senate President, and the Assembly
Speaker.
5
The NJAIRE Board represents many phases of public
and insurer perspectives. Board members come from
actuarial, agency, claim, legal, operations,
regulatory, statistical and underwriting
backgrounds, allowing for a diverse group of
individuals. The current Board of Directors
consists of two attorneys from prestigious New
Jersey law firms, a licensed New Jersey Insurance
broker, and members from AAA-Mid-Atlantic,
Allstate, Highpoint, Hanover, Liberty Mutual, New
Jersey Manufacturers, State Farm and Twenty First
Century. The New Jersey Department of Banking and
Insurance is an ex-officio member of the Board.

6
Its important to note that Board members from
insurance companies do not represent their
company. They represent all member companies of
their trade association. New Jersey carriers
belong to either 2 trade groups the Property
Casualty Insurers Association (PCI) or the
American Insurance Association (AIA) or they may
not belong to a trade group, and are considered
Non-affiliated. Non-affiliated members represent
all New Jersey non-affiliated insurers.
7
NJAIRE Board of Directors

• Mary Bernadette Corrigan (Hanover)
• Frank Coscia, Esq. (Schenck, Price, Smith King,
  LLP)
• Thomas DeFalco, Treasurer (New Jersey
  Manufacturers)
• Stephen Doyle (Farmers/Twenty-first Century)
• Peter DiGiambattista, (Public Member)
• Thomas Gorecki, (Public Member)
• Richard Hubschman, Esq. (Hubschman and Roman)
• Mark Keenan (Allstate)
• Thomas Myers, Chairperson (High Point)
• Sam Sackey, (NJ Department of Banking
  Insurance)
• Russell Shaner , (AAA/Mid-Atlantic)
• David Ziemer, Vice-Chairperson (State Farm)

8
NJAIRE also has several standing committees,
chaired by Board members who bring personal and
business related expertise to their committee.
The Actuarial Committee is chaired by Tom
DeFalco, who is an Actuary and Officer with New
Jersey Manufacturers Insurance Company. This
committee oversees assessment percentages for
each accident year, as well as establishing
annual interest, closeout years and addressing
other actuarial issues.
9
The Audit committee is chaired by Larry Weiss
from Palisades Safety and Insurance Management
Corporation. This committee works closely with
our external auditors to assure that audit
guidelines are proper and current, and audit
compliance is achieved by carriers.The Finance
and Investment Committee is chaired by attorney
Frank Coscia, assuring that NJAIRE funds receive
safe and optimum yield through several financial
institutions.The Insurance and Contracts
Committee is chaired by Mark Keenan from Allstate
Insurance Company. This committee oversees
vendor and policy contracts.
10
M. Paige Berry is NJAIRE General Counsel. Ms.
Berry is an exceptional attorney associated with
the law firm of Saul Ewing, located in
Princeton.The NJAIRE office is located in
Franklin Boro and is operated by General Manager
Donald Foth. Don is a former long term Board
member and officer, now retired from State Farm
Companies.
11
New Jersey statutes mandate NJAIRE compliance
by every auto insurer licensed to conduct
business in New Jersey, and its been our
experience that some carriers do not meet NJAIRE
standards. This issue became sufficiently
evident to the New Jersey Department of Banking
and Insurance, and resulted in the issuance of a
compliance reminder from Commissioner Bakke on
July 26, 2004.
12
(No Transcript)
13
The NJAIRE Plan of Operation and Procedure
Manual contain specific reporting requirements
that are not present in any other state. This
can result in a lack of understanding about
NJAIRE requirements, possibly as a result of
staff turnover, or multi-state responsibilities.
The current NJAIRE Plan of Operations and the
separate Procedure Manual are written in an
understandable format, and are available in both
paper and on the NJAIRE website.
14
ISO serves as the Central processor for NJAIRE.
ISO handles the complexities of

• Reported data from each carrier
• Assessments collected from applicable carriers
• Reimbursements paid to appropriate carriers
• Annual cash settlement to all carriers
• Website creation and maintenance
• NJAIRE Budget and expenses
• . . . and a myriad of other tasks that keeps
  an ISO team busy 100
  of the time.

15
NJAIRE maintains contracts with two external
auditors. Annually, the financial records of
NJAIRE are reviewed by Withum, Smith and Brown, a
CPA firm that conducts financial audits.
Through its statutory authority NJAIRE requires
compliance audits of every applicably licensed
New Jersey insurance company. Compliance audits
are conducted by AIPSO, the parent organization
of most residual market mechanisms in the United
States. AIPSOs Residual Markets Audit Services
(RMAS) has an exceptional history of conducting
compliance audits within the industry, using many
industry retirees who are very competent in their
audit specialty.
16
NJAIRE audits encompass much more than the
residual market, and AIPSO has tailored NJAIRE
audits to fit NJAIRE requisites. Each year, the
NJAIRE Board of Directors selects 10 carriers to
receive NJAIRE audits to ascertain compliance.
Each audit is conducted in a formal atmosphere.
It requires advance data be provided to enable
the auditors to select specific claim records for
review. Audits are conducted at the carriers
office, with five auditors present, usually for
one week. Subsequent to the audit, there is
communication between AIPSO and the carrier
before a final report is submitted to the Board.

17
. The Board reviews every audit, in detail,
taking action as appropriate, including penalty
assessment when carriers fail to achieve NJAIRE
compliance. Feedback from AIPSO and ISO has
prompted educational seminars that focus toward
the actuarial, claim, statistical, or other areas
in your companies that are responsible for
maintaining and reporting NJAIRE information.
Two seminars were conducted in 2005 and single
seminars were presented in 2006, 2007, 2008 and
2009. The next seminar will be on November 4,
2010. Contact Don Foth at gmanager_at_njaire.org
for additional information.
18
. NJAIRE recommends that carriers maintain an
understanding of NJAIRE requirements, especially
in areas where staff turnover occurs.
Self-audits are also recommended to assure
ongoing compliance.Contact information is
available on the NJAIRE website www.njaire.org
for anyone who needs additional information.
The Board of Directors meets four times
annually, and carriers are welcome to attend
Board meetings as well as the annual meeting
which is held in conjunction with the November
Board of Directors meeting.