First‐Party Versus Third‐Party Compensation for Automobile Accidents: Evidence from Canada

24 Pages Posted: 9 Apr 2012

See all articles by Anne Kleffner

Anne Kleffner

affiliation not provided to SSRN

Maureen Tomlinson

affiliation not provided to SSRN

Date Written: Spring 2010

Abstract

Insurance regimes for compensating losses arising from automobile accidents vary by jurisdiction, ranging from a pure tort system to a pure no‐fault system, with both systems having well‐documented benefits and costs. The majority of published research focuses on the benefits and costs associated with the compensation for bodily injury. This article extends the existing literature by examining the differences between first‐party and third‐party recovery for both physical damage and bodily injury losses in Canada. Our comparison of auto insurance costs per insured vehicle suggests that government‐run, pure no‐fault provinces have lower average costs than provinces with private tort and modified no‐fault. Lower costs arise from the elimination of tort costs associated with noneconomic damages, lower claims settlement costs due to first‐party compensation, and scales of economy arising from monopoly power. The second goal of the article is to examine the impact of first‐ versus third‐party compensation on the settlement of property damage claims. We analyze the claim files of a large insurer that operates within both a traditional tort (third‐party) environment and a first‐party recovery environment for property damage. We find that in a first‐party recovery regime claims are settled sooner, settlement costs are lower, and not‐at‐fault drivers are compensated at a higher rate than in the traditional tort environment.

Suggested Citation

Kleffner, Anne and Tomlinson, Maureen, First‐Party Versus Third‐Party Compensation for Automobile Accidents: Evidence from Canada (Spring 2010). Risk Management and Insurance Review, Vol. 13, Issue 1, pp. 21-44, 2010. Available at SSRN: https://ssrn.com/abstract=2036896 or http://dx.doi.org/10.1111/j.1540-6296.2009.01177.x

Anne Kleffner

affiliation not provided to SSRN

No Address Available

Maureen Tomlinson

affiliation not provided to SSRN

No Address Available

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