History

• No-fault auto insurance arose from legal changes in many states that allowed individuals to have their medical bills covered through their own insurance company instead of having to pursue lawsuits against the other driver's insurer. While these changes were taking place during the 1970s, they were expanded during the 1990s in many states to become full-scale, no-fault auto insurance policies. Today, a dozen states have no-fault auto insurance programs. These states include Florida, Michigan, New Jersey, New York, Pennsylvania, Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, Utah, and North Dakota. Three of those states--New Jersey, Pennsylvania, and Kentucky--allow policy holders to choose between traditional and no-fault insurance.
  
  

Features

• No-fault auto insurance differs from traditional insurance because the parties involved in a car accident have limitations on the legal actions they can take. Drivers have the option of going through their own insurance providers for the coverage of property damage. Medical costs that are not covered by a person's health insurance may also be covered. Because these costs are covered by the insurance company regardless of who is at fault for the accident, no further legal actions can be taken. However, severe injuries that exceed a specified threshold may warrant tort (civil legal) action.
  
  

Benefits

• The main reason for states to switch to a no-fault auto insurance policy is to save money. The assumption is that because auto insurance companies are not going to be involved in litigation and are not going to be required to pay for expensive pain and suffering damages, their savings will be passed onto consumers in the form of lower premiums. Additionally, this type of insurance protects the victims of hit-and-run accidents by allowing them to more easily recover their damages.
  
  

Effects

• Despite having the goal of lowering premiums, recent studies in these states found the opposite to be the case. Premiums are 19 percent higher in these twelve states than in the rest of the country, and those premiums rose 92 percent faster between 1998 and 2002. Part of the reason for the higher premiums is that medical costs have skyrocketed. Because fault is no longer a factor, even safe drivers who do not cause but who are involved in accidents can end up suffering from these higher premiums, too.
  
  

Warning

• There are several reasons why a growing number of states are leaning away from no-fault auto insurance policies. For one, the promise of lower premiums seems to be unfilled. In three states that recently repealed their no-fault laws, premiums were reduced for consumers by $76 to $156. Additionally, the argument is that this approach to insurance does not punish bad drivers, so they have little reason to change their ways.