The Effects of a Proposed No-Fault Plan on the Costs of Auto Insurance in California: An Updated Analysis

Abstract

Abstract : The Alliance to Revitalize California, a private, non- profit organization, has proposed a no-fault automobile insurance plan for California (Coalition for Common Sense, November 1994). The California Department of Insurance asked the Institute for Civil Justice to analyze the effects of the proposed plan on automobile insurance costs in California. We used a database we had developed in the course of a previous study to estimate the effects of the proposal and published our findings last March. The database we used in that study described the compensation provided a random sample of California auto accident victims in 1987. Recently we obtained comparable data for a random sample of Californians who were compensated for auto accident injuries in 1992. Using these more recent data, we replicated our earlier analysis. Our analysis of the 1992 data suggests that the proposed plan would result in substantial savings on insurance costs. In brief, we find that the proposed plan would reduce the costs of compensating auto accident victims for personal injuries by 21 to 54 percent compared to California's current auto insurance system. If the premium an insurer charges for a policy varies in proportion to the compensation costs it can expect to incur on behalf of the policyholder, the plan would result in a reduction of 11 to 29 percent in the average California driver's auto insurance premiums.