No-fault automobile-insurance regimes were the culmination of decades of dissatisfaction with the use of the traditional tort system for compensating victims of automobile accidents. They promised quicker, fairer, less-contentious, and, it was hoped, less-expensive resolution of automobile-accident injuries. This monograph considers how these plans have fared.

SUMMARY
To many commentators and policymakers in the 1970s, it appeared as though no-fault automobile insurance was a genuinely superior policy innovation that would displace conventional tort-based automobileinsurance regimes. More than 30 years later, no-fault has lost much of its popularity among insurers and consumer groups. What happened?

This monograph provides an overview of the experience in the United States with no-fault automobile insurance and the factors that led to its decline in popularity among insurers, consumer groups, and legislatures. We explore the history of no-fault and examine its performance relative to other approaches for automobile-accident compensation. We draw from a variety of data sources, including qualitative interviews, surveys, and administrative databases, to evaluate the successes and failures of no-fault and consider its likely future in the United States.

Prompted by dissatisfaction with the traditional tort system for compensating the ever-rising number of automobile-accident victims, no-fault proponents advocated a less adversarial approach. The central idea of a no-fault system is that, rather than seek recovery against another driver under conventional principles of tort law, an injured automobile-accident victim could simply recover the costs of the accident from his or her own insurance company.

This “no-fault” approach involves three components: (1) a partial or total restriction on the right to sue other drivers for being at fault for automobile accidents, (2) a restriction on recovering for pain and suffering or other noneconomic damages, and (3) mandatory insurance so that the victim can recover his or her economic losses (including medical costs) from his or her own insurance company.

In the United States, add-on no-fault is an important variation in which an injured party can recover from his or her own automobile insurance without any restriction on also filing a tort claim against another driver. Another important variation, choice, allows individual drivers to choose whether to accept, in exchange for lower premiums, restrictions on their right to sue other drivers.

No-fault approaches to automobile insurance were first proposed in the 1920s, modeled after the workers’ compensation no-fault approach to workplace accidents. For the next 40 years, numerous academic studies decried the use of the tort system to compensate injured victims of automobile accidents. ...

Download The U.S. Experience with No-Fault Automobile Insurance: A Retrospective

PDF format, 1MB, 192Pages.

James M. Anderson, Paul Heaton, Stephen J. Carroll
INSTITUTE FOR CIVIL JUSTICE

PREFACE
Policymakers’ choices about automobile-accident insurance are vitally important. These choices affect not only the world’s largest insurance market but also incentives that may affect driving behavior—an activity that results in the deaths of more than 35,000 people every year in the United States.

For policymakers to make those choices wisely, they need a thorough understanding of the advantages and disadvantages of the available policy options and a history of the debate. This monograph provides an overview of the United States’ experience with its boldest experiment in the history of automobile insurance: no-fault automobile-insurance systems, in which automobile-accident victims seek compensation from their own insurer. It will be of interest not only to policymakers but also to researchers and insurers interested in no-fault insurance systems.

We build on a long history of RAND Institute for Civil Justice (ICJ) research to help policymakers more thoroughly understand the effect of policy choices in automobile insurance. From the rate of fraud to the effects of choice and no-fault insurance, ICJ has long provided independent analyses to aid policymakers in achieving an empirically grounded understanding of the issues. A full list of ICJ publications related to auto insurance is available from RAND Corporation (2009).

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