According to a study released by the RAND Corporation, no-fault auto insurance, once perceived as a way to lower premiums and keep court costs down, has dropped in popularity among both consumers and insurers.
In theory no-fault insurance lowers the cost of compensating those involved in an accident by keeping cases out of the court system. It does not work, however, because costs actually increased due to a sharp spike in medical claims.
James M. Anderson, the lead author on the study and a researcher at the non-profit RAND organization said, “No-fault insurance is a classic example of the law of unintended consequences.”
No-fault insurance restricts both the right to sue other drivers for being at fault and to receive payment for non-economic damages including pain and suffering.
The goals were to minimize litigation, cut administrative costs, fairly compensate victims, and to create coverage that was less expensive that tort-based insurance.
Premium cost drops never materialized, however, as medical costs increased. Currently, 29 states have tort-based coverage, with three states allowing drivers to opt for either “limited tort” or “full tort” policies. The remainder of the states have some form of no-fault coverage.
The cost of injuries under no-fault policies were only 12 percent higher in 1987, but by 2004, those costs were 73 percent greater. Additionally, states where lawsuits against drivers were restricted saw higher claim costs than in those states were suits were allowed.