Automobile Physical Damage Insurance Inspection Procedures

Proposed Amendment: N.J.A.C. 11:3-36.6

Proposed Repeal and New Rule: N.J.A.C. 11:3-36 Appendix C (2)

Authorized By: Donald Bryan, Acting Commissioner, Department of Banking and Insurance

Authority: N.J.S.A. 17:1-8.1, 17:1-15e and 17:33B-17

Calendar Reference: See Summary below for explanation of exception to calendar requirement.

Proposal Number: PRN 2002-47

Submit comments by March 23, 2002 to:

Karen Garfing, Assistant Commissioner

Office of Regulatory Affairs

Department of Banking and Insurance

20 West State Street

PO Box 325

Trenton, NJ 08625-0325


The agency proposal follows:


Several years ago, the Department adopted N.J.A.C. 11:3-36.6, which establishes the standards and procedures that apply to inspections that are conducted in connection with the issuance of physical damage insurance coverage pursuant to the provisions of N.J.S.A. 17:33B-33 through 40. Specifically, N.J.S.A. 17:33B-37a provides that the physical damage inspection coverage conducted by insurers may include photographs of the automobile if prescribed by the Commissioner. When subchapter 36 was first adopted, the Department exercised its discretion in favor of compelling insurers to obtain three photographs of a vehicle prior to the issuance of physical damage coverage.

The application of these rules to fraudulent claim abatement, and the costs of having every vehicle photographed have been reviewed. Based on this review, the Department is proposing to amend N.J.A.C. 11:3-36.6 to provide that the acquisition of photographs prior to the issuance of physical damage coverage shall be subject to the insurerís discretion.

Thus, the Department has proposed amendment of N.J.A.C. 11:3-36.6(c), (f), (h), (j) and (k) so as to permit insurers to choose whether or not to have the photographs taken. N.J.A.C. 11:3-36 Appendix C(2) is proposed for repeal. Proposed new Appendix C(2) omits any reference to mandated photographs. The text of the new Appendix C(2) is othrewise identical to the Appendix proposed for repeal.

This rule proposal provides for a comment period of 60 days, and therefore, pursuant to N.J.A.C. 1:30-3.3(a)5, is not subject to the provisions of N.J.A.C. 1:30-3.1 and 3.2 governing rulemaking calendars.

Social Impact

The primary social impact of this amendment will be to permit insurers discretion in determining whether or not photographs of a vehicle will be taken prior to issuance of physical damage coverage. Since there is a degree of expense associated with generating the photographs, insurers will have the opportunity to determine the efficacy of this cost. If the photographs are not taken, insurers will be able to reduce the cost associated with binding coverage, and thereby may be able to offer coverage at a lower price and encourage new insurers to enter this market place.

Economic Impact

The proposed amendment will positively impact on insurers and members of the general public. Insurers will be able to determine and assess the impact of taking photographs of automobiles prior to the issuance of physical damage coverage. In the event an insurer does not take the photographs, the insurer can save that expense and may be able to pass on some of the savings to the policyholder.

Federal Standard Statement

A Federal standard analysis is not required because this amendment regulates the business of automobile insurance, which is governed by Title 17 of the New Jersey Statutes, and is not subject to any Federal requirements or standards.

Jobs Impact

N.J.S.A. 52:14B-4(a)(2) requires that all notices of a proposal to amend rules include a "jobs impact statement which shall include an assessment of the number of jobs to be generated or lost if the proposed rule takes effect."

In accordance with the statutory obligation, the Department has conducted a review of the foreseeable impact that the adoption of these amendments will have on jobs in the State of New Jersey. No demographic, scientific or workforce development studies are available. However, the Department does not believe that this amendment will have a negative impact on jobs creation. Additionally, to the extent that the proposed amendment will allow insureds to properly and adequately create all risks, the increased efficiency in the insurance marketplace may encourage new insurers to enter this State, thus, creating new jobs.

Agriculture Industry Impact

The Department anticipates that the proposed amendment will have no impact on the State agriculture industry.

Regulatory Flexibility Statement

Pursuant to the Regulatory Flexibility Act, N.J.S.A. 52:14B-17, a "small business" is any business resident in this State that employs fewer than 100 employees; is independently owned and operated; and is not dominant in its field. A few New Jersey automobile insurers meet this definition. The Department observes that the proposed amendment does not impose any new recordkeeping, reporting or compliance obligation on any insurer, large or small, and in fact this amendment will permit insurers greater flexibility in determining whether or not the expenditure of funds necessary to take photographs of vehicles is cost effective. These are choices that each insurer, large and small, will make.

Full text of the proposed repeal may be found in the New Jersey Administrative Code at N.J.A.C. 11:3-36 Appendix C(2).

Full text of the proposed amendment and new rule follows: (additions indicate in boldface thus; deletions indicated in brackets [thus]):

11:3-36.6 Standards and procedures for inspection

(a) - (d) (No change.)

(e) The inspection shall include [the following:

1. Completion] completion of the Automobile Insurance Inspection Report as set forth in Appendix C incorporated herein by reference[;] .

[2. Two] Insurers may also elect to have color photographs taken of the automobile and/or the Environmental Protection Agency/Federal Certification Label (EPA sticker located on driverís side door jamb) [as directed on the inspection report (Appendix C),] which shall be part of the report[;] .

[3. A third close-up color photograph showing the VIN located on the Environmental Protection Agency/Federal Certification Label (EPA sticker) affixed to the driverís side door jamb. The photograph must be of sufficient clarity that the information contained on the EPA sticker and VIN is legible. If the EPA sticker is damaged, faded, missing or otherwise not legible, a photograph of the EPA sticker, or of the area of the door jamb where the sticker is normally located, is still required.

4.] The authorized representative may take additional photographs showing any damaged areas of the vehicle when requested by the insurer, which shall also be a part of the report[; and

5.] . The authorized representative shall provide a copy of the report, without photographs, to the insured at the time of inspection.

(f) The insurer shall utilize authorized representatives and systems to implement the provisions of this subchapter which meet the following standards:

1. - 2. (No change.)

3. Completed all required information for each automobile on the Automobile Insurance Inspection Report set forth in Appendix C; and

[4. Takes photographs as required in (e) 2 through 3 above; and]

[5.] 4. Provides for the storage and retrieval of reports and photographs (if taken) in a manner that facilitates their use as set forth in [paragraph] (j) below.

(g) (No change.)

(h) After the inspection is completed, the report and photograph (if taken) shall be retained in the insurerís file on the insured for five years.

(i) (No change.)

(j) The inspection report and photographs (if taken) shall be used by the insurer to document previous damage, prior condition, options and mileage of the automobile on physical damage claims whenever;

1. - 3. (No change.)

(k) A copy of the inspection report and photographs (if taken) shall be utilized, and made a part of the insurerís claim file, in the settlement of all total loss claims. The inspection report shall be made a part of the claim file regardless of whether or not the payment is reduced based on the information contained therein.

(l) (No change.)