No-Fault Approaches to Compensating People Injured in Automobile Accidents

Widespread dissatisfaction with the traditional approach to compensating people for auto accident injuries has revived interest in no-fault approaches. This report estimates the effects of a broad range of no-fault plans, compared with the traditional system. The study is primarily based on data from two sources — closed-claim surveys and a household survey — which were combined to construct a representative sample of people injured in auto accidents. The authors use data on what actually happened to people injured in auto accidents in states that have adopted no-fault systems, to develop statistical models. These models relate injuries, losses, and other factors to whether or not the victims received any compensation from auto insurance and, if so, how much, how quickly, and at what transaction costs. The authors then apply these models to samples of people injured in auto accidents in states that retain the traditional compensation system to estimate what would have been their outcomes under a specified no-fault alternative. Finally, they compare the actual outcomes people experienced under the traditional system with their estimated outcomes under various no-fault alternatives. The findings indicate that no-fault can yield substantial savings over the traditional system, or may increase costs substantially, depending on the no-fault plan's provisions. Regardless of plan provisions, all no-fault plans reduce transaction costs, match compensation more closely with economic loss, reduce the amounts paid in compensation for noneconomic loss to less seriously injured people, and speed up compensation.