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  What Is No-Fault Auto Insurance?



No-fault insurance is a 1970s-style scheme in which a motorist involved in an auto accident generally files a claim with his or her own insurer for personal injuries, regardless of who caused the accident. No-Fault differs from a traditional tort liability system in which fault is apportioned, the negligent driver is held responsible and his or her insurance compensates innocent drivers for their losses.

  • Under No-Fault, good drivers pay for bad. It is only fair that a person who is a habitually safe driver should not have to pay as much for auto insurance as someone who is habitually careless. The traditional tort system provides incentives for safety, because drivers are "experience rated" to determine their insurance rates. Under a no-fault system, good drivers would have to pay more, even if an accident is not their fault, since they would receive a surcharge for their claim. This would mean that safe drivers will pay more than they would have to under a traditional tort system, and bad drivers would pay less.
  • Such a system destroys driver accountability. Under the current system, the increased costs of insurance for bad drivers can help deter these drivers from driving recklessly or driving at all. In contrast, under the no-fault system, bad drivers may never have the costs of their carelessness passed back to them. Ironically, drivers with good records may pay more under no-fault, especially if they are struck by another vehicle. At a time when government leaders on all sides are calling for greater accountability, this scheme would undermine any attempt to hold people accountable for their actions.
  • No-Fault is a failed system that has failed to reduce costs. The promises made by no-fault proponents are lower insurance premiums and costs than under a fault-based system. In fact, no-fault systems that have been imposed in the states have not reduced insurance costs. The five states with the highest average automobile insurance rates are no-fault states. Conversely, seven of the ten lowest states are traditional tort systems.
  • Such a system benefits the insurance industry. A key reason that no-fault proposals continue to be advocated is that insurance companies find it increases their profits. Aggregate industry profitability for liability insurance in no-fault states is 15% greater than in traditional tort states. This increased profitability is not hard to understand. No-fault severely limits the individual's right to recover for injuries, holding insurance payouts down, and making it easy for insurers to predict potential costs. Insurers will not return the supposed savings from no-fault to their policyholder -- they will just keep it.
  • No-Fault is a discredited remedy to high insurance rates. No state has switched from a tort system to a no-fault system since 1976. Several states that had enacted no-fault laws have since repealed them, and have reduced premiums as a result. In Georgia, premiums decreased by 9-10% since the repeal of no-fault in 1991. In Connecticut, rates declined 10% for liability coverage and 6% overall after repeal. Voters in two states (California and Arizona) recently rejected no-fault schemes in ballot referenda by wide margins. Legislatures in two other states (New Mexico and South Carolina) recently defeated no-fault legislation.

Republished with the permission of the Association of Trial Lawyers of America.