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Why Colorado Dropped PIP Car Insurance

On July 1, 2003, Colorado became the latest in a string of U.S. states to repeal no fault auto insurance law and go back to a tort based system for car coverage. The repeal came after steep increases in premiums under the old system and widespread claims of abuse by medical professionals and others. The repeal came on the heels of a year in which the average cost of auto protection increased significantly, and amid forecasts of continued like increases. Private consumers and politicians alike pushed for the repeal. When the change went into effect, savings were immediately apparent. And although the repeal was quite dramatic, the resultant new standards for Colorado drivers were not as unlike the old standards as some might have imagined.

Tort Saves Colorado Drivers Money

The state of CO decided to do something about ever increasing PIP auto premiums by eliminating them altogether and getting rid of no fault plans. By moving to the tort system in 2003, policy holders in the state saw an average financial windfall right away. Tort based auto coverage was much less expensive in Colorado than no fault had been.

In 2002, the year before the PIP repeal, the increase in personal injury protection premiums in Colorado was more than double the national average. These increases had been coming for some time, and were expected to continue well past the new year. When no fault auto protection was repealed as of July 1, 2003, the average cost of Colorado liability auto insurance policies with optional uninsured motorist coverage was at $503, compared to $691 for no fault coverage with the same uninsured motorist protection previous to the repeal. This amounted to a 27 percent savings in average premium cost [1].

Even drivers who added comprehensive and collision insurance to their Colorado auto policies saw significant average savings under the new tort system. The average cost of said policy was down to $869, as compared to $1018 under PIP insurance law. The average savings for auto owners was around 15 percent [1].

Comparing Tort and No Fault

For the state to drop no fault or personal injury protection and revert to tort law might have been thought of as a revolution. But in truth, the two auto insurance systems have more in common than one might think. Hence the change really wasn't as cataclysmic as it might have seemed on the surface.

Both auto insurance law systems include liability coverage as a required component. This is one area many people misunderstand about no fault. Because of its misleading name, they do not think that no fault auto insurance concerns itself with finding fault in an accident. But in reality, this is far from the truth. No fault states typically require liability insurance as Colorado did, for example. In the old system and the new, the liable driver in an accident was responsible for taking care of vehicular damage expenses.

In both the old PIP and the new tort systems in Colorado, comprehensive, collision, and uninsured/underinsured motorist coverage were/are all optional for policy holders. So the two seemingly disparate auto insurance legal systems did have some things in common.

Contrasting Tort and No Fault

However, they are very different in some ways as well. If this were not the case, there would have never been a need for change at all. Under PIP insurance, medical coverage was required, whereas it is now only an option for Colorado drivers. Many motorists in the state look at this as a big improvement, because they felt that they were paying for superfluous or duplicative coverage when their health insurance contained similar protection [1].

Another difference with the new tort based auto insurance system is that the liable driver is now also responsible for paying the injured person's medical bills as well as taking care of the property damage they cause in an accident. So while there are certainly some key similarities between Colorado PIP and tort auto insurance laws, there are enough distinctions between the two to easily see the logic behind the 2003 repeal of no fault and adoption of tort car insurance regulations.

At its apex of popularity, over half of the states in the U.S. operated under some form of PIP auto insurance law. But since 2003 with the repeal of no fault in Colorado, there are only a dozen remaining states under the PIP banner. There are many reasons for the decline in popularity of this system of administering car insurance coverage. CO's case cannot be construed as representative of all states, but its experience with no fault is nonetheless instructive. In future years it will be interesting to see how the remaining PIP states deal with their auto insurance laws.

[1] http://www.aptaco.org/CostAnalysis.pdf Retrieved 2010-04-06.

 

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