The Effects of a Proposed No-Fault Plan on the Costs of Auto Insurance in California

An Updated Analysis

by Stephen J. Carroll, Allan Abrahamse

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This Issue Paper estimates how a pure no-fault automobile insurance plan, proposed for California in 1995, would affect the costs of automobile insurance in the state. The plan would have eliminated tort liability for auto accident personal injuries. Based on data from a random sample of auto accident victims compensated in 1992, the analysis suggests that the proposed plan would have reduced the costs of compensating auto accident victims for personal injures by 21 to 54 percent compared with California's current auto insurance system. If the premium an insurer charges for a policy varies in proportion to the compensation costs it can expect to incur on behalf of the policyholder, the plan would have reduced the average California driver's auto insurance premiums by 11 to 29 percent.

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