The Impact of No-Fault Legislation on Automobile Insurance

North American Actuarial Journal, Volume 16, Issue 3, 2012

Posted: 26 Feb 2014

See all articles by Cassandra R. Cole

Cassandra R. Cole

Florida State University - College of Business

Kevin Eastman

Independent

Patrick F. Maroney

Florida State University - Risk Management Center

Kathleen A. McCullough

Florida State University - College of Business

David A. MacPherson

Trinity University; IZA Institute of Labor Economics

Date Written: 2012

Abstract

Since its inception, the effectiveness of no-fault legislation has been highly debated. Although some research suggests that no-fault laws are effective in reducing costs, other evidence suggests that the current no-fault systems may not meet the original objectives. This study provides a detailed assessment of the relation of no-fault laws and automobile insurance losses for the period 1994 to 2007. By examining total automobile insurance losses along with liability and personal injury protection losses, we are able to determine if and how specific provisions of the laws are related to claims costs. We find a negative relation between the presence of a no-fault law and total losses, which suggests that no-fault systems are associated with lower losses than the traditional tort system. In addition, an examination of no-fault-only states suggests that specific provisions of no-fault laws, such as thresholds and limitations on benefits, have some effect on losses. With the sunset of Colorado’s no-fault legislation in 2003, the recent passage of Personal Injury Protection Reform in Florida, and proposed federal choice legislation, the overall impact of no-fault as well as the specific components of the laws are of heightened importance to consumers, insurers, and lawmakers.

Suggested Citation

Cole, Cassandra R. and Eastman, Kevin and Maroney, Patrick F. and McCullough, Kathleen A. and MacPherson, David A., The Impact of No-Fault Legislation on Automobile Insurance (2012). North American Actuarial Journal, Volume 16, Issue 3, 2012, Available at SSRN: https://ssrn.com/abstract=2401220

Cassandra R. Cole (Contact Author)

Florida State University - College of Business ( email )

423 Rovetta Business Building
Tallahassee, FL 32306-1110
United States

Kevin Eastman

Independent ( email )

Patrick F. Maroney

Florida State University - Risk Management Center ( email )

Tallahasse, FL 32306
United States

Kathleen A. McCullough

Florida State University - College of Business ( email )

Department of Risk Management and Insurance
150 Rovetta Business Building
Tallahassee, FL 32306-1110
United States
850-644-8358 (Phone)
850-644-4077 (Fax)

David A. MacPherson

Trinity University ( email )

San Antonio, TX 78212
United States
210-999-8112 (Phone)
210-999-7255 (Fax)

HOME PAGE: http://www.davemacpherson.com

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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