Repeal of No-Fault Laws Could Save Drivers Hundreds of Millions, Group SaysRepeal of No-Fault Laws Could Save Drivers Hundreds of Millions, Group Says
Boston, MA -- No-fault auto insurance is consistently more expensive than traditional insurance and should be repealed in Massachusetts and across the country, according to a national study of auto insurance premiums released today by the nonprofit, nonpartisan Foundation for Taxpayer and Consumer Rights (FTCR).
The study found that the cost of insurance fell for drivers in states that have repealed no-fault laws. It also details the importance of a strong insurance regulation system in the effort to lower insurance rates.
"No-fault has failed to live up to insurers' promises of lower insurance rates. Lower premiums can be achieved by repealing failed no-fault laws and instituting strict rate regulation," said Harvey Rosenfield, the Founder of FTCR and author of California insurance reform initiative Proposition 103, who unveiled the study in Boston .
The study compares auto insurance premiums under three different systems: no-fault[endnote 1], personal responsibility[endnote 2], and hybrid/choice[endnote 3]. According to the analysis of premium data as reported by insurance companies to the National Association of Insurance Commissioners:
- Premiums are 19% higher in no-fault states than in personal responsibility states.
- Seven of the ten states where auto insurance was most expensive in 2002 had no-fault or hybrid/choice systems.
- States with some form of no-fault insurance are consistently a majority of the highest priced states in the nation, forming six to eight of the top ten every year since 1989.
- Auto insurance premiums rose 92% faster in no-fault states than in personal responsibility states between 1998 and 2002.
- Six of the ten states with the greatest premium increases between 1998 and 2002 have mandatory no-fault systems.
Massachusetts Drivers Could Save $200 Million By Repealing No-Fault
Mandatory no-fault laws have been repealed in six states and the District of Colombia since 1980. In three of the four states covered by the report's data, auto insurance premiums are significantly lower in 2002 than they would have been had they followed the average increase in no-fault states: $145 lower in Connecticut, $76 lower in Georgia and $156 lower in Pennsylvania.
New Jersey's switch from mandatory no-fault, however, has not produced savings because that state maintained a largely no-fault system. Under that state's "choice" system, insured drivers purchase, by default, a no-fault policy unless they specifically request a personal responsibility policy. As such, New Jersey policyholders consistently pay among the highest premiums in the nation with its choice system. Even after the legislature enacted a mandatory 15% rollback for insurance customers in 1998, New Jersey remained atop the list of most expensive states.
By comparing the trends in personal responsibility states with the increases faced by Massachusetts drivers in recent years, the study concludes that Massachusetts policyholders are paying an average of $50 too much each year on a basic limits policy, a collective $200 million annually.
"Massachusetts drivers threw away $200 million in extra premiums because no-fault insurance is an expensive idea that doesn't work," said Rosenfield. "Consumers should not be forced to continue overpaying for insurance to subsidize a bad idea that limits consumers' rights without lowering anyone's rates."
Rate Regulation Needed to Ensure Savings
The study compares premiums in Massachusetts, the first state to enact a no-fault law in 1971, and California, a personal responsibility state that enacted the nation's strongest insurance rate regulation and reform law in 1988.
Under the 1988 California law, known as Proposition 103, auto insurance customers received $1.2 billion in rate refunds and saved another $23 billion during the first decade of regulation. The voter-approved Proposition 103 requires each insurer to prove that its rates are not excessive, inadequate, or unfairly discriminatory, and it allows members of the public to challenge insurer's rate proposals. The law ended the historic antitrust exemption for insurance companies and made the insurance commissioner an elective office.
Massachusetts exempts insurers from antitrust rules and sets one rate for all companies rather than individually regulating each insurer.
Insurance premiums are 37% higher in Massachusetts than in California. California premiums, which were 53% more expensive than the national average in 1989, fell to the national average by 2002. In contrast, Massachusetts premiums were consistently on the rise during that period, climbing from 26% to 39% higher than the national average by 2002.
Why No Fault Is More Costly
Insurance company promises that lower insurance rates will come from limiting customers' ability to collect compensation from at-fault drivers never come to fruition, according to the report, and restrictions on lawsuits do not offset the higher costs of no-fault insurance. The sources of higher costs include:
- Twice the number of people are covered under no-fault because both the innocent victim and the person who caused the accident are paid.
- No-fault's mandatory payments create incentives to increase medical treatment and encourage fraud for those people without other forms of health coverage.
- No-fault does not significantly reduce litigation costs because it retains the litigation system for property damage, which is a major element in most accidents.
- Limiting drivers' personal responsibility for poor driving encourages reckless driving.
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 Drivers involved in an accident seek compensation from their own insurer, regardless of fault, and the right to collect compensation from the at-fault driver is restricted.
 A traditional liability system in which insurance policies provide payment to the innocent party when a driver is at-fault, and the at-fault driver can be held responsible for injuries and damage done to another person or their property in court.
 Providing drivers with aspects of both personal responsibility and no-fault coverage, or giving drivers the choice between personal responsibility and no-fault systems.