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

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  • Jorge Urrutia
  • Robert C. Witt

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.

Suggested Citation

  • Jorge Urrutia & Robert C. Witt, 1985. "No-Fault Versus Tort-Liability Compensation for Automobile Accidents: Which is Best?," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 8(1), pages 52-71.
    • Handle: RePEc:wri:journl:v:8:y:1985:i:1:p:52-71
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