New Jersey officials this week reached agreement with the state's major insurance companies to use about $665 million in revenue bonds to help clean up a deficit-ridden auto insurance pool.

The plan is designed to put to rest a long-running dispute between the state and insurers over who should pay off a $1.3 billion deficit that has accumulated in New Jersey's Market Transition Facility, an auto insurance pool set up to provide coverage for high-risk drivers.

Insurance companies, which sued the state to avoid paying any share of the deficit, agreed Monday to drop the lawsuit and contribute a total of more than $700 million to the deficit elimination package.

The state's planned revenue bonds will be paid off from bad driver surcharges assessed by the Department of Motor Vehicles, according to New Jersey officials.

"The bottom line is that the massive debt we inherited has been addressed with no policyholder surcharge being brought to bear on the drivers of this state," said Drew Karpinski, New Jersey's commissioner of insurance.

The American Insurance Association, which represents several major insurance companies in the state, issued a statement expressing "disappointment" that the companies are being required to pay off more than half o the market transition facility's deficit.

"Despite substantial evidence that the misguided policies of the Florio Administration created the MTF deficit, the insurance industry has agreed to pay nearly 60% of the $1.3 billion debt," said Elmer Matthews, counsel to the association.

The group urged that legislation be enacted to overhaul the auto insurance system in the state to make coverage more affordable.

Karpinski said his goal in the negotiations has been to avoid pinning the costs of the deficit on people who maintain good driving records. "It pleases me to no end to be able to announce today that we have accomplished that goal," he said.

Under the agreement, insurers will not be permitted to pass along the additional costs to customers.

The bad driver surcharge, which will be used to pay off the proposed bond issue, was originally enacted to offset losses in the predecessor to the market transition facility, the Joint Underwriting Association.

"By recognizing the historical purpose of an existing revenue stream and building a bonding component exclusively from that source, we have been able to fashion a proposal that makes sense financially and philosophically," Karpinski said.

Legislation must be approved for the plan to take effect, including bills to codify the prohibition against passing the insurers' additional costs on to customers and one to dedicate the bad driver surcharge to repayment of the bonds.

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