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No-Fault Without Fear : RAND study points to a sensible way to cut auto insurance rates

The respected RAND research center is the latest party to enter the long controversy over how to lower the premiums that motorists pay for auto insurance. In a detailed study, its researchers have concluded that no-fault insurance would help dramatically in California.

A no-fault insurance system differs from our current tort liability system. Under no-fault, each driver’s insurance company reimburses for the costs of treating injuries and other losses, regardless of who was at fault for an automobile accident. Under a tort system, the insurer of the party judged to be at fault for the accident must pay.

The RAND study estimated the effects that different types of no-fault insurance systems would have in 27 states that have tort liability systems, paying particular attention to large states like California.

RAND’s key findings confirmed what many researchers have long argued: that a carefully designed no-fault plan can cut insurance costs substantially. That’s because, unlike the tort system, no-fault systems are designed to keep minor traffic accidents out of court. Among other things, that means claims get settled faster (about two months quicker) and more of the settlement money actually gets to the accident victims instead of “claims handlers,” especially lawyers.

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Given that conclusion, it’s not surprising that among the first to criticize the RAND report were trial lawyers, who fear a no-fault system would reduce the income they make from lawsuits resulting from traffic accidents. They are probably right. The RAND study also found, for example, that California drivers are much more likely to hire attorneys after an accident than drivers in other states--52% according to the most recent statistics, in contrast to Indiana, where only 19% of the people injured in auto accidents hire attorneys to help handle their claims. Lawyers cost money, and any system that relies on them too much will be expensive. So clearly part of the answer to high auto insurance premiums is to keep the number of lawyers involved to a minimum.

RAND’s dispassionate and persuasive appraisal should prod the Legislature to finally begin carefully designing a no-fault system for this state.


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