RAND Corp. releases look at no-fault insurance

The Rand Corp. recently released a look at the popularity - or lack thereof - and costs of no-fault insurance across the country.

The study gives an overview of the United States' experience with no-fault systems, in which automobile accident victims seek recovery from their own insurer instead of from another driver.

In the 1970s, many policymakers and analysts believed that no-fault automobile insurance would displace conventional, tort-based automobile insurance policies. Today, however, no-fault has lost much of its popularity among insurers and consumer groups, according to the report. Currently, 29 states have tort-based policies, three states allow drivers to choose between less expensive "limited tort" insurance or more expensive "full tort" insurance, and the remaining states have some form of no-fault insurance. These numbers have remained fairly steady over the past decade.

No-fault insurance has three components: a restriction on the right to sue other drivers for being at fault for an automobile accident; a restriction on receiving payment for pain and suffering or other non-economic damages; and mandatory insurance so anyone involved in an accident can recover his or her economic losses, including medical costs, from their own insurance company.

Policymakers believed no-fault insurance would minimize litigation and administrative costs, more fairly compensate victims of automobile accidents and be less expensive than tort-based insurance. In practice, however, premium cost reductions never materialized, in large part because of increased medical costs.

Injury costs under no-fault were only 12 percent higher in 1987 relative to tort-based insurance, but by 2004 costs were 73 percent more expensive under no-fault plans. In addition, those states that restricted lawsuits against other drivers actually had higher claim costs than states that permitted lawsuits.

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