An Economic Analysis of Auto Compensation Systems: Choice Experiences From New Jersey and Pennsylvania

Abstract

Nearly since the first automobile traveled on U.S. soil, questions about how best to compensate people injured by their use have been raised. As early as in 1932, in fact, the tort system of imposing costs on negligent drivers was strongly criticized, and a system of compensation without regard to negligence recommended. Yet despite various efforts to identify and implement improved systems during the past more than 70 years, no clear best compensation mechanism has been found. Current discussions have focused on the "choice" system, under which insureds are allowed to select either a tort system or a no-fault system of compensation at the time of insurance purchase. New Jersey and Pennsylvania, which implemented very similar choice programs in 1989 and 1990, respectively, offer an opportunity to observe the effects of choice on outcomes such as: use of attorneys, speed of payment, and consistency (equity) of payment. Our results indicate outcomes consistent with expectations in New Jersey (NJ), which switched from no-fault to choice, but inconsistent with expectations in Pennsylvania (PA), which switched from tort to choice. Furthermore, analysis of tort versus no-fault selectors postchoice in New Jersey and Pennsylvania does not offer clear evidence of no-fault's lower administrative costs and speedier, more equitable payment in these jurisdictions. Copyright The Journal of Risk and Insurance.

Litigation Patterns in Automobile Bodily Injury Claims 1977–1997: Effects of Time and Tort Reforms

“…An exception is the no‐fault reform variable, which tends to be positive. We would consider this result contrary to expectations except that prior research indicates that state no‐fault legislation often results in counterintuitive patterns because of the complex incentive systems for claim build‐up and litigation (Schmit and Yeh, 2003).…”

A Cross‐National Study of Government Social Insurance as an Alternative to Tort Liability Compensation

“…In addition to a measurement of personal distance, urbanization sometimes is interpreted as availability of legal services, with greater urbanization indicating easier access to legal services, which would make litigation less costly and therefore more likely. A positive relationship between litigation rates and urbanization has been observed in a number of settings, supporting the hypothesis (Browne and Puelz, 1996;Cummins and Tennyson, 1996;Schmit and Yeh, 2003). Using data provided by the World Bank, the percentage of a nation's population that lives in urban areas is used to reflect the level of urbanization.…”

Hospital Cost Shifts As A Result Of Changes In Auto Insurance Regimes

“…No-fault insurance is often perceived as speeding up the payment process because determination of fault is unnecessary. Although this may not, in fact, be the case, (Schmit and Yeh, 2003) the perception can bias a health care community in favor of no-fault insurance. Ma and Schmit (2000) find that, controlling for average premium size and other relevant variables, no-fault states have higher levels of uninsured motorists.…”

“…At the time, no-fault was regarded as a system which would speed up payments and lead to more equitable compensation than occurred under a tort system (Schmit and Yeh, 2003).…”