According to the recent study conducted by RAND Corporation, a nonprofit organization, found out that no-fault auto insurance failed to deliver its promises in lowering premiums and court expenses.
Its recent decline in terms of popularity among consumers has proven that this insurance scheme is indeed problematic.
The study confirmed that this insurance scheme has dramatically increased the court costs because of the rising price of medical claims. Initially, this was formulated to keep down the compensation costs for persons involved in road mishaps by keeping these cases out of the court.
James M. Anderson, a RAND researcher and author said that the no-fault insurance scheme displays the ‘law of unintended consequences.’
The study also provides a complete overview into the no-fault systems. Drivers are allowed to request compensation from their own insurance companies rather than the other driver involved in the accident.
It was in the 1970s, when the original authors of the no-fault insurance believed that it was one of the most important innovations in the history of car insurance which provides a fair leverage for its policyholders. However, after four decades, much of its gleam has faded.
There are three main key components of a no-fault system. First, the driver is unable to file a lawsuit against the other driver for the accident. Second, there is no payment for pain, suffering and non economic related damages. Third, policyholders are required to have their own insurance so that they can take care of their own expenses (including medical expenses) from their respective insurance companies.
Lawmakers have long thought that this scheme would hinder cost of administration and court litigation, provide fair compensation for victims and will make a new way for a better and affordable alternative. However, the real savings in premium costs never happened. The increased of medical expenses was identified as the primary culprit.
Statistically, in 2004, the injury costs were identified as 73% most costly under the no-fault schemes as compared to 12% back in 1987. Moreover, drivers still had higher claim costs in states that ‘restricted’ lawsuits in comparison to states that allowed lawsuits to be filed.
Anderson attributed this to the rising cost of medical expenses for consumers who availed to a more ‘specialized types’ of medical care. Also, most of these costs are shouldered by the auto insurer rather than to the medical insurance providers, more specially ‘no-fault states.’