How Does Tort Reform Affect Auto Insurance Costs?

Although proponents of tort reform argue that it will benefit consumers through lowered insurance premiums and increased insurance availability, to date there is limited empirical evidence linking tort reform to consumer outlays. Using data from the Consumer Expenditure Survey and a differences-in-differences research design, this paper examines whether any of several common state-level tort reforms affect consumer costs for auto insurance. Expenditures on auto insurance fall by 12% following no-fault repeal and 6% following relaxation of collateral source restrictions, but are not measurably affected by bad faith reform, reforms to joint-and-several liability, or noneconomic damage caps. None of the reforms generate measurable increases in auto insurance take-up. There is little variation in the impact of the reforms across income, education, and age groups, but no-fault repeal and collateral source reform do disproportionately benefit consumers with lower cost policies. Author e-mail: [email protected]. I wish to thank Eric Helland and seminar participants at RAND who provided useful comments on the manuscript. This research was funded by the RAND Institute for Civil Justice (ICJ). The content of this work is solely the responsibility of the author and does not necessarily reflect the views of the ICJ or its supporters.