NCPA - National Center for Policy Analysis

"No Fault" Insurance Associated With Higher Fatality Rates

December 16, 1999

"No fault" insurance, in which the injured party collects damages from his insurer, is frequently proposed to reform the tort liability system for accident claims, and a national no-fault automobile insurance program has been considered by Congress.

The concept has been adopted by several jurisdictions in the U.S., and by Canada, Australia and New Zealand, as a mechanism for controlling costs and improving the efficiency and timeliness of accident compensation.

As a mechanism for compensating the victims of automobile accidents, no-fault has several important advantages over the tort system, say researchers. However, by restricting access to tort, no-fault may weaken incentives for careful driving, leading to higher accident rates.

  • Studies of the pure no-fault systems adopted in Canada, Australia, and New Zealand have found a positive association with automobile accident fatality rate.
  • A recent empirical analysis of fatality rates in the U.S. found deaths for the period 1982 to 1994 in no-fault states were 5.5 percent to 9.9 percent higher under no fault than they would be under tort.
  • Some 15 U.S. states now have some form of no fault law, with thresholds that make an average of 70 percent of claims ineligible for liability suits,; 12 additional jurisdictions have so-called add-on laws, which provide first-party medical expense coverage but don't restrict torts.

While pure no-fault systems substantially eliminate tort liability for automobile accidents, the partial no-fault laws adopted in the U.S. retain the right to sue for death and serious injuries and thus are likely to have a weaker effect on deterrence.

Source: J. David Cummins (University of Pennsylvania), Mary A. Weiss (Temple University) and Richard D. Phillips (Georgia State University), "The Incentive Effects of No-Fault Automobile Insurance," Social Science Research Network (SSRN) Electronic Library, November 29, 1999.


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