Car insurance costs rise as no-fault systems face scrutiny

Lawmakers introduced no-fault insurance laws in the 1970s to reduce car insurance premiums by cutting down on costly lawsuits to determine fault. However, this goal has not been fully realized, leading to increased costs for consumers.

No-fault systems are plagued by inconsistent insurance laws and low "tort" thresholds, which dictate how severe an injury must be before a driver can file a lawsuit, according to Daniel Lucas, Insurify Carrier Relationships Manager. The Insurance Information Institute (Triple-I) reports that some medical providers and personal injury attorneys exploit these systems, resulting in lawsuits and fraud that drive up insurers' expenses.

Though no-fault laws are not the sole reason for high car insurance rates, they largely fail to shield drivers from expensive lawsuits and rising premiums.

In most states with at-fault auto insurance laws, insurers pay injury claims based on who caused an accident. In contrast, no-fault states require all drivers to have personal injury protection (PIP) coverage and file claims with their own insurer regardless of fault.

Lucas explained: “Because PIP is a first-party coverage, the insured is able to use this coverage immediately following a loss and have guaranteed payment up to the limits.”

Proponents argue that no-fault systems streamline the claims process since injured drivers don't need to wait for fault determination before receiving medical cost payments. However, critics highlight that legal system abuse is prevalent in both no-fault and at-fault states.

Scott Holeman of Triple-I noted: “Decades later, the medical systems and plaintiff attorneys have adapted...to largely negate the intended benefits.”

Florida's recent legislative reforms demonstrate how changes can mitigate legal system abuse. By prohibiting vehicle glass benefit assignments in 2023, Florida saw an 83% reduction in auto glass lawsuits by 2024.

Legal system abuse also affects New York. In 2024, Allstate sued several medical clinics over alleged overbilling for accident victim treatments. Rep. Ken Blankenbush proposed legislation in January aimed at reducing insurance fraud and improving treatment standards.