No-Fault Auto Insurance Is Faulty!
Hidden truths are the exciting part of contracts as they throw twists and turns into the deal, sometimes for better but also sometimes for worse. Just like those “$8/month for the first 6 months” gym memberships have hidden terms and conditions, car insurance is no different and it is wise to read the fine print to ensure understanding of what is included. However, with car insurance, sometimes the fine print is not sufficient as certain parts are emphasized whereas others are either not mentioned or not mentioned until it is necessary to make a claim. Regardless of the contracts involved, there are two main systems of insurance in use: tort and no-fault. Tort liability is the traditional system of hiring a lawyer and taking care of matters in front of a court. No-fault insurance was designed to provide basic medical coverage for people in car accidents without dealing with the time consuming tort process. No-fault automobile insurance is beneficial until you have to make a claim. The advantages of no-fault insurance are lower premiums which so more drivers can afford to be insured as well as it’s quicker and easier to make a claim. However, like anything else in life, there is a hidden, yet intense negative side to no-fault insurance because accident victims cannot sue for damages, compensation is limited to what is stated in the policy, and there is a severe moral hazard problem related to the direct incentive to drive carelessly while “protected” by no-fault insurance. Good but..
Traditional car insurance is based on a tort liability system. A tort system allows accident victims to sue the wrongful party for damages in the aftermath of an accident. Under a tort system, “only victims who can show that someone negligently caused the accident are able to collect economic losses” (Cummins & Weiss, The Stochastic Dominance of No-Fault Automobile Insurance, 1993). This makes the case difficult because of the pure nature of an auto accident. It is referred to as an “accident” because, according to Mikita Brottman in her book Car Crash Culture, “an accident... is an unlucky conflation of circumstances” and responsibility is difficult, if not impossible to determine (Brottman, 2002). A court case is immediately dismissed if insufficient evidence is given and the process of determining cause and blame can be very time consuming and costly. The process of assessing fault in an accident must be performed by a registered expert in the field. Before an accident case can be brought to justice for compensation, it is mandatory for research to be completed into the details of the accident by agents who work for insurance companies. The amount available for compensation can also vary since the strength of the case depends on how much time and money is available and devoted to working on it. In this view, the benefit of no-fault insurance is clear over tort liability because claims can be made to the driver’s own insurance company without assigning blame. No-fault insurance “shifts emphasis from liability-based compensation toward compensation provided without regard for fault” (Carroll & Kakalik, 1993). No-fault provides first-party insurance for personal injuries without requiring the hassles of a lawyer and time spent in court. This is advantageous over tort liability since it requires less inputs of funding and time allocations to bring the other driver to justice and receive compensation. Insurance costs are also decreased under a no-fault system in comparison to the tort system. No-fault insurance brings social equity of compulsory or partially-compulsory auto insurance systems for drivers with very low net worth. High insurance premiums in urban areas requiring liability insurance imposes a severe regressive tax on economically-disadvantaged drivers and thus forces many to take the risk of driving without insurance (Cummins & Weiss, The Stochastic Dominance of No-Fault...
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