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Abstract

When first enacted, no-fault automobile insurance promised a quicker, fairer, and less expensive approach to compensating victims of auto accidents. Despite its initial popularity, political support has declined because premiums cost more, rather than less, in no-fault states. These cost increases can be traced to two main causes: Not only does auto insurance pay for more medical services for accident victims in no-fault states, but it also pays more for the same care than in tort states.

When first enacted in the 1970s, no-fault automobile insurance had many advocates. Its central idea was that an injured accident victim would simply receive compensation from his or her own insurance company instead of having to show the fault of another driver to recover losses from the other driver's insurance company. Many insurers and consumer groups supported the new concept as a way to mitigate the problems of resolving disputes through the courts, such as high costs, long delays, incentives for making dishonest claims, and the unfairness of compensating some victims much more than others. Despite its promise, however, the no-fault approach has fallen out of favor over the past 20 years. Several states have repealed their no-fault laws and gone back to the traditional tort system, and efforts to pass federal legislation stalled. What happened?