No-Fault Versus Tort-Liability Compensation for Automobile Accidents: Which is Best?

Jorge Urrutia and Robert C. Witt

Journal of Insurance Issues, 1985, vol. 8, issue 1, 52-71

Abstract: No-fault automobile insurance is a first-part coverage under which accident victims can recover up to certain limits for economic losses from their own insurers without regard to fault. On the other hand, a tort-liability compensation system is based on third-part coverage under which negligence has to be proven in order to collect from the party at fault. Problems with and criticisms of the tort-liability compensation system in automobile insurance culminated in the implementation of no-fault plans in 24 states during the 1970's. This paper presents empirical tests of some of these alleged advantages, based on loss-ratio data by state for 1975 through 1980. It was found that a no-fault compensation system tends to increase relative benefits provided to consumers of automobile insurance. However, it was also found that a no-fault system does not improve the predictability of losses for insurers, at least in the short run.

Date: 1985
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