Private Law Theory

ABSTRACT
When Michigan instituted no-fault auto insurance in 1973, its proponents argued that it would be a much more efficient and less costly system for administering auto insurance claims than tort liability. Unfortunately, the opposite eventually proved to be true. Michigan’s system was unique among states in that it provided unlimited no-fault medical benefits and insurers were severely constrained in their ability to control medical costs. By 2019, Michigan’s auto insurance claim costs and premiums were the highest in the nation. This motivated the state’s Legislature and Governor to significantly amend its no-fault law and tighten its regulation of auto insurance. While these reforms and regulatory changes are relatively nascent, there is considerable interest in knowing their effects, including the consequences of allowing consumers to choose their level of no-fault coverage, instituting medical cost controls for no-fault coverage, and tightening the regulation of insurance companies. In this paper, we evaluate the no-fault reforms and their impacts. We find some initial evidence that claim costs and premiums for some and perhaps many drivers have decreased substantially but medical providers and trial attorneys are challenging the medical cost controls that were enacted, arguing that they are too harsh and arbitrary and that the adequacy and quality of care received by auto accident victims has suffered as a result. Fundamentally, there is the issue of whether it is possible to design a no-fault system that is superior to tort liability and fair to all of a state’s residents in terms of the benefits that it provides and its premium costs. Michigan could be viewed as an experiment on both the promises and pitfalls of a grand vision for no-fault auto insurance. Our paper contributes to an important debate on whether no-fault auto insurance can be saved and is worth saving.

Born, Patricia and Klein, Robert Warren, No-Fault Auto Insurance Reform in Michigan: An Initial Assessment Revised (September 7, 2023), Journal of Insurance Regulation, volume 43, no 1, 1-33.