Mr. Chairman, Members of the Committee, thank you for inviting me here today.

      I applaud you for holding this important hearing. Asking the states about our experience in addressing the high cost of auto insurance illustrates the partnership that the Congress is building with us. As a governor, I welcome that spirit of partnership and cooperation.

      Mr. Chairman, let me begin by stating two basic facts about automobile insurance in New Jersey.

      First, it is mandatory. Every driver in New Jersey is now required to carry a minimum $250,000 medical insurance component, as well as coverage for some lost wages and other out-of-pocket expenses. Each driver's own policy pays, regardless of fault. It doesn't matter who caused the accident; in New Jersey, payment for medical bills through auto insurance is guaranteed.

      Second, automobile insurance rates in New Jersey are the highest in the nation.

      There are many reasons we hold this distinction. New Jersey is the most densely populated state in the nation. We also have 782 cars per square mile.

      New Jersey has a high cost of living, which means higher costs for medical treatment and car repairs after a car accident.

      More than 90 percent of New Jersey drivers choose higher liability limits than the law requires. Consumers buy higher coverage to protect assets of higher value than in other areas of the country.

      Those demographics are unique to New Jersey and are part of what makes the state the wonderful, diverse place it is. But those numbers make clear that New Jersey will never have the lowest car insurance rates in the country -- especially given the frequency of lawsuits in our state.

      New Jersey is the most litigious state in the Union. In 1995, we filed 819 lawsuits per 100,000 residents. The next state behind us -- Nevada -- had 512 lawsuits per 100,000 residents.

      In fact, litigation costs account for more than $300 of every $1,000 in insurance premiums, while only $190 of that same $1,000 goes to paying medical bills for the injured.

      I have proposed a major reform to New Jersey's auto insurance system which, in part, resembles the Auto Choice plan now before Congress.     

      My proposal recognizes that the single most important thing car insurance can do for a family in the event of an accident is to pay medical bills, lost wages, and other out-of-pocket expenses promptly and without regard to fault.

      In New Jersey, as I mentioned, insurance is mandatory. But that should not mean it can't be affordable and allow consumers to choose the amount of insurance that best meets their needs.

      I have proposed a four-choice system that will allow drivers to keep the insurance they have today at a savings, or select from other new, less expensive policy options.

      These innovative options will allow those who do not wish to pay the high cost associated with "pain and suffering" lawsuits to have full access to the courts for any economic losses they suffer as victims in an accident, and at the same time enjoy reduced rates for agreeing to sue only for economic losses, and not for non-economic claims.

      The first option -- the Economic Choice policy -- will provide coverage for medical bills up to $250,000, lost wages, and other costs. Policyholders can sue and be sued for economic losses, but agree not to sue or be sued for pain and suffering. Consumers choosing this option could save up to $250 on today's most commonly purchased New Jersey policy.

      Our second proposed option -- the Scheduled Benefit policy -- provides the same basic coverage as option one. It adds benefits for pain and suffering compensation based on a predetermined schedule to be paid by one's own policy, without the need for litigation. Consumers choosing this option could save up to 10 percent off today's typical policy.

      The third option -- the Serious Injury policy -- is most similar to our state's current "verbal threshold" policy, which limits the ability to sue for pain and suffering to a list of serious injuries. This verbal threshold is now chosen by 88 percent of our drivers. My proposal differs from the current policy in that we will impose tighter limits on lawsuits, allowing suits only for the most serious injuries.

      The fourth option -- the Lawsuit Recovery policy -- is similar to our "zero threshold" policy. Drivers who choose this option could sue for pain and suffering whatever the severity of their injury.

      I should note here that each of these four policy options contains tough sanctions for drunk drivers and illegally uninsured drivers. No matter which policy you choose, if you are hit by a drunk or uninsured driver in New Jersey, you can sue that person for pain and suffering. And, even if the drunk or uninsured driver is not the at-fault driver, he or she cannot sue for pain and suffering.

      I believe that offering new choices to drivers will reduce the cost of auto insurance in New Jersey. But we are doing other things to keep insurance costs down, particularly in the prevention of fraud and abuse.

      We know, for instance, that when insurance companies pay for unnecessary and overused medical treatment, that drives up insurance costs for all drivers. So we have enacted a law that requires doctors to notify an insurance company within 21 days that they are treating injuries related to a car accident. And we have proposed establishing a peer review panel of physicians to examine instances of questionable treatment. In such cases, medical professionals would now be the ones to determine whether a course of treatment is truly necessary.

      In addition, we will make sure insurance companies comply with our state laws against insurance fraud by reporting acts of fraud -- whether they are committed by auto body shops, medical professionals, lawyers, or the drivers themselves. If insurance companies allow fraud to go unreported, we are proposing to hit them with a $25,000 penalty for each and every violation.

      Given our plan for reform in New Jersey, I am encouraged by the direction the Congress has taken in regard to auto insurance legislation.

      Last year's S. 1860 was a model of federalism in that federal law would represent the first word, rather than the last word, on the subject. New Jersey and every other state would be free to modify or even repeal any element of the bill. In addition, under S. 1860, states would have been able to block the law from taking effect if they could demonstrate it would not lead to significant savings for their drivers.

      Just as my proposal allows drivers choice, federal legislation should allow states the flexibility to address their own unique demographic, economic, and public safety concerns. What makes sense for addressing New Jersey's crowded roads, busy courts, and high cost of living might look very different from the right solution for many other states.

      Mr. Chairman, I urge that this year's version of the Auto Choice bill preserve these elements of federalism and allow the states maximum latitude to design insurance reforms that will work best for their citizens.

      Thank you very much.

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