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HOW NO-FAULT INSURANCE WORKS
Insurance companies agree, saying that no-fault systems reduce their costs—and the resulting higher auto insurance premiums—by limiting the number of lawsuits over auto insurance policies. That’s a big plus for an insurance sector in which legal fees account for 12 percent of premium costs, white medical expenses account for 15 percent.

The basic factors that shape no-fault programs include:
• Thresholds: Designers of a no-fault system must decide when injuries are so severe that a person should be allowed to sue the driver responsible. Make the threshold too low, and people will flock to court; too high, and some might not be fairly compensated. Most no-fault proponents favor a verbal threshold that spells out which specific injuries permit a trip to court. The alternative is a monetary threshold, which allows lawsuits for damages above a specified amount. But detractors are concerned this encourages the padding of medical bills to exceed the threshold.

• Benefit (or liability) limits: What are the maximum benefits an injured motorist can receive under a no-fault policy? While some suggest a limit as high as
$250,000, the industry proposal puts the cap on benefits at $50,000, which insurance officials say covers 97 percent of all auto claims.

• Lost coverage allowances: No-fault can mean that drivers pay more to maintain their current level of coverage. For instance, since no-fault only covers insured motorists and their passengers, a driver might have to buy a separate liability policy to cover such things as hitting a parked car.

• Cost containment: Low-cost policies also could require medical treatment from a managed-care provider.
“PURE” NO-FAULT

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One reason proponents defend no-fault so staunchly is that when they say no-fault, they generally mean pure no-fault.
Under a pure no-fault system, virtually all lawsuits related to auto accidents are eliminated. The right to sue and a chance for a damage award are replaced with the right to guaranteed benefits. Lawsuits are retained only to punish convicted drunken drivers and others guilty of criminal conduct. Policyholders pay premiums to protect themselves. If they (or their passengers) are injured, they are compensated by their own insurers—no matter who caused any part of an accident.

That’s unlike a liability system, which requires the responsible party’s insurer to pay for medical bills and
car repairs.

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