No-Fault Auto Insurance Not As Great As It Seems?

A new study has found that no-fault auto insurance is not as beneficial as it may seem. According to the study conducted by RAND Corp., a nonprofit research organization, instead of lowering costs as it’s intended, no-fault insurance actually increases costs due to medical claims that are rising.

What is No-Fault Insurance?

No-fault auto insurance is a type of auto insurance that allows both parties in a collision to avoid being declared at fault. Instead, both parties are considered equally liable for the accident. The idea is to save claims costs by restricting lawsuits against other drivers.

This type of insurance has three components:

  • A restriction on the right to sue other drivers for being at fault for an accident
  • The inability to receive payment for pain and suffering or other non-economic damages
  • Mandatory insurance so that those involved in the accident can recover economic losses – including medical costs – from their own insurance company

To date, slightly more than a dozen states offer this type of insurance.

Details from the Study

According to the study, while injury costs under with no-fault insurance were 12 percent higher than standard insurance in 1987, by 2004, the injury costs were 73 percent more under these plans. As a result, the intention of insurance has been lost in the increasing costs associated with injury care.

Specifically, those who seek medical assistance under the no-fault policies tend to get more specialized treatment since they can, which ultimately costs more. So now, those who were anticipating lower premium costs with this type of auto insurance are seeing increases because the claims costs are so high.

Do you have no-fault insurance? Do you pay more in premium costs?