Study Shows Tort-Based Auto System Provides Savings for Colo. Drivers

A Colorado study shows that since the state scrapped its ailing no-fault automobile insurance program in favor of a tort-based system, rates for some consumers have dropped between 19.5 percent and 27.1 percent.

The study conducted by the Property Casualty Insurers Association of America (PCI) and the Rocky Mountain Insurance Information Association (RMIIA) compared automobile insurance rates in January 2005 for a 35-year old married couple in Denver, Pueblo and Sterling, Colorado to rates in July 2003 when the state’s no-fault law was allowed to sunset.

Colorado’s no-fault system was reportedly plagued by high costs due to broad medical coverage that drivers were forced to purchase. The personal injury protection (PIP) benefit evolved into one of the most expensive systems in the nation. Following the implementation of the tort-based system, consumers were given the option to not purchase medical payments coverage or to select from a variety of levels of coverage.

“The study demonstrates that Colorado consumers benefit from the tort system,” said Michael Harrold, assistant vice president and regional manager for PCI. “Colorado insurers reduced premiums because the factors driving up claim costs were addressed. In addition, consumers were given more choices regarding the type and amount of coverage they purchase. As a result, consumers now have hundreds of dollars in their pockets to spend as they see fit.”

“Colorado provides a clear ‘before and after’ picture for other states regarding what can occur when major cost drivers in automobile insurance spiral out of control and then are addressed by public policymakers,” said Terry Tyrpin, senior vice president, personal lines and research services for PCI. “States that adopted no-fault systems in the 1970s and 1980s thought the system would curb skyrocketing legal costs, streamline payments of benefits, and lower rates. However, in many no-fault states the cost savings intended by the system have been diluted by the inability to stop lawsuits.

“In addition, expansion of mandated PIP coverage has lead to over utilization and treatment abuses. As other states such as Florida, Minnesota, New Jersey, and New York work through problems with their no-fault systems, Colorado demonstrates the positive impact controlling costs can have for consumers.”