Increase In Medical Costs Leads To The Downfall Of No Fault Auto Insurance Policies


PAL-00045747-001Once a very popular and highly sought after auto insurance policy, the no fault auto insurance, is now losing its face because of its inability to meet the desired expectations as per the results of one of the recent studies conducted by RAND. A number of customers opted for this policy in the past since they thought it would reduce their auto insurance premiums and curtail court costs. However, they soon began to realize that this was not how the policy functioned.

The objective of the no fault auto insurance policy was to bring down the amount of money being paid out as compensation by cutting out court costs. But, the increasing cost of the medical expenses actually enhanced the costs rather than bringing it down, as originally intended.

RAND’s researcher and lead author, James M Anderson, said that the no fault auto insurance policy clearly displays the effect of poor planning. As overview of the no fault auto insurance in the United States is outlined in this study. Under this type of insurance policy, victims of accidents can file from compensation from their respective insurance companies rather than that of the other driver’s provider.

When insurance analysts and policymakers came up with this policy in the 1970s they assumed that this would be a great change from the conventional policies. However, with the passage of years, this policy has seen a downward trend.

There are three aspects to the no fault insurance policy. First of all, there is a limitation on filing case against the other driver in case of an auto accident. Secondly, there is a limitation on the amount that will be given out for non-economic damages such as suffering and pain. Thirdly, compulsory medical insurance so everyone involved in the accident can be compensated by the provider issuing the policy itself.

When policymakers designed this policy, the objective was to bring down the administrative costs and keep litigations to a minimum. They also felt that it would be inexpensive as compared to the other policies and would also provide good compensation to all accident victims. However, the increasing medical costs did not let the dream of low insurance premiums materialize.

As per the report, there is nobody in the political circle as well to stand by the no fault auto insurance policy today.