Citation

Powers MR. J. Risk Insur. 1992; 59(2): 203-220.

Copyright

(Copyright © 1992, American Risk and Insurance Association, Publisher John Wiley and Sons)

DOI

10.2307/253188

PMID

unavailable

Abstract

No-fault automobile insurance laws have historically been justified by both efficiency and equity arguments. In this article, the author proposes that optional no-fault systems be justified solely on the basis of two fundamental equity principles. A review of the entire spectrum of mandatory and optional automobile insurance recovery systems reveals that one specific type of optional no-fault-the self-determining system now operating in New Jersey and Pennsylvania-is more equitable than traditional tort, mandatory no-fault, or any other optional no-fault system. Further, it is shown that no mandatory or optional no-fault system can be truly equitable if premiums are based solely upon projected loss experience, without explicit premium reductions for the decrease in expected losses attributable to the insured's tort restrictions. Finally, two mechanisms are reviewed for assuring that, under the self-determining no-fault system, expected losses for insurers are exactly balanced by the premiums that they receive.