New Study Revealed No-Fault Auto Insurance not likely to cause savings


A new study revealed that no-fault auto insurance may not be really a good way to lower policy premiums. The study found out that the no-fault auto policies, which were designed mainly to provide drivers with affordable premiums, turned out to have increased the expenses of motorists due to steeper medical costs brought upon by no-fault claims.

New Study Revealed No-Fault Auto Insurance not likely to cause savingsNon-profit research group RAND Corp. did a recent study on auto insurance and gave results indicating that under no-fault plans, medical expenses went up by 73%. Back in 1987, a similar study was conducted by another research group and they found out that the medical costs that come with no-fault coverage were only 12% more expensive. The research conducted by RAND Corp. also revealed that states that have restricted lawsuits against other motorists ended up with more costly claim expenses as compared to states that allow civil suits.

RAND researcher and study lead author James Anderson said that No-fault auto policies provide a classic example of the law of unintentional consequences. Anderson said that he and team believes that medical expenses went up mainly because drivers with no-fault auto insurance tend to use highly advanced and specialized forms of medical treatment; some even choose the more expensive treatment from famous hospitals. Anderson revealed that there are strong evidences leading to large scale medical cost inflation.

According to RAND, 29 states currently follow the tort-based system and the remaining states make use of the no-fault insurance system. Back in 1970, no-fault auto coverage was seen as the primary method of reforming the tort-based system that has been chiefly blamed for booming auto policy costs. Under the no-fault system, victims of road accidents and collisions seek reimbursement from their own insurance company, and not from the other party involved in the accident.

The no-fault system is composed of three parts: a restriction on getting payment for physical injuries or other non-economic damages, a restriction on the right to sue other parties proven to have caused a car accident, and mandatory insurance so anyone involved in a collision can recover his monetary losses, which of course includes medical and rehabilitation expenses, from his own insurance provider.

Insurance experts believe that no-fault policies would cut back the costs that come with litigation and administrative processes and offer a better way of compensating victims of car accidents. By doing these two, the no-fault system is destined to be less expensive than tort-based coverage. However, Anderson said that the policy premium rate reductions promised do not seem to come true, mainly because of increased cost of medical care.