New Jersey's insurance industry has asked the state to consider issuing more than $4 billion of bonds to eliminate deficits generated by a notoriously underfunded auto insurance system.

In a proposal that received decidedly tepid reaction this week from Gov. Jim Florio, the American Insurance Association said the bonds could be repaid through a 5% surcharge on drivers' auto insurance premius. David Snyder, senior counsel to the nationwide industry trade group, said the surcharge would raise about $10 billion over 20 years to repay principal and interest on the bonds.

Although Gov. Florio agreed to consider the idea, he said in a letter to Insurance Commissioner Samuel Fortunato that he has "serious questions about whether [the insurers' plan] would be good, fair policy on the part of the state.

"People in New Jersey feel they are paying too much for car insurance as it is, and they certainly cannot be blamed for that," Gov. Florio said inthe letter, questioning whether a new surcharge would be a reasonable way to fund out the deficits.

The governor's own auto insurance reform package, passed by the state Legislature last year, places most of the burden for paying the deficits on the backs of insurers through a 7% surcharge on industry premiums. The reform also includes higher auto-related fees.

Mr. Snyder said the governor's reforms continue the state's tradition of inadequate rates and will allow the deficits to continue accumulating.

"Unless there is a satisfactory solution found for the deficits, they will continue to cause major political and economic problems in the state," Mr. Snyder said.

In 1989, Sen. William Gormley, R-Atlantic, proposed a similar $3 billion bond plan to solve the deficit problem, but the idea never advanced in the state Legislature. Sen. Gormley could not be reached for comment yesterday.

New Jersey's auto insurance system is one of the most highly regulated in the nation. Representatives of the insurance industry contend regulators have consistently refused to let them charge rates that are high enough to cover the generous benefits packages required by the state.

As a result, they say, massive deficits have accumulated over the years in New Jersey's now-defunct Joint Underwriting Association, the state's high-risk driver pool that Gov. Florio's reforms abolished. The state's Unsatisfied Claim and Judgment Fund also is adding to the deficit total, according to the insurance industry.

In all, New Jersey's auto insurance deficits include $1.5 billion at the underwriting association, $2 billion at the unsatisfied claim fund, and $700 million at Gov. Florio's new transition facility established to replace the underwriting association, according to insurers.

But Jim Berzok, director of public affairs for the New Jersey Insurance Department, said the combined deficits are actually much lower. He said the underwriting association's gap is higher, at $3.1 billion, but the other two funds are required by their enabling legislation to break even. Any budget shortfalls that do materialize must be handled at the end of the year through increased surcharges on the industry, Mr. Berzok explained.

Mr. Snyder said that, since the industry and the administration appear to be at odds even on the size of the deficit, a blue-ribbon commission of insurance industry officials, consumer activists, and bond experts should be formed to study the problem and various financing alternatives, including the bond proposal.

But simply bonding out the old deficits will not solve the entire problem, since new gaps will be generated in the future, according to Mr. Snyder. Therefore, he said, the state also should pare the amount of mandatory coverage drivers must purchase and eliminate the unsatisfied claim fund.

Mr. Snyder characterized the industry's bond plan as a starting point for discussions, saying he hoped the Florio administration would not reject it out of hand without more discussion.

"The ball is their court," he said.

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