How Do You Spell Commodity?

/in /by

commodity (noun): an economic resource the market treats as equivalent or nearly so with no regard for who produced it

We’ve often heard it said auto insurance is a commodity. Forty-nine states require it. The only exception is New Hampshire. But drivers there have to prove they have the financial wherewithal to cover damages in at-fault accidents. Only 12 states (and Washington D.C.) have no-fault laws for auto accidents: Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah. The other 38 follow have at-fault (or tort) systems.

Drivers found responsible for causing accidents in at-fault states are liable for damages, including medical expenses, property damage, and other losses. In no-fault states, on the other hand, each driver’s insurance covers the damages regardless of who caused the accident.

So much for commodity.

Don’t Go Away

Kentucky, New Jersey, and Pennsylvania have hybrid or optional no-fault systems for auto accidents. Washington, D.C. has a modified no-fault (hybrid) system that gives drivers flexible coverage options, allowing them to use Personal Injury Protection (PIP) benefits — or pursue a claim against the at-fault driver within 60 days of an accident.

No-fault drivers rely on their own PIP coverage to pay for medical expenses and certain other costs (like lost wages), regardless of who caused the accident. Premiums are typically lower, but the ability to sue at-fault drivers for non-economic damages (like pain and suffering) is restricted unless the injuries meet a specific threshold. While no-fault policies generally prevent lawsuits over minor accidents, severe injuries can still lead to legal action against at-fault drivers. Premiums for at-fault policies are typically higher; however:

  • In Kentucky and New Jersey, if drivers don’t specify an option, the default is a no-fault policy.
  • In Pennsylvania, the default is an at-fault policy.
  • In New Jersey and Pennsylvania, no-fault policies include verbal thresholds: Lawsuits for non-economic damages are allowed only for injuries considered serious, the definition of which varies by state.
  • In Kentucky, monetary thresholds apply: Medical expenses or other damages must exceed a certain dollar amount to qualify for a suit for non-economic damages.
  • In Washington D.C., drivers must carry PIP for medical expenses and lost wages, regardless of fault. Within 60 days, they can use their PIP benefits, which limits their ability to sue unless injuries exceed their PIP limits or result in permanent scarring or impairment lasting more than 180 days — or reject PIP benefits and file a liability claim against the at-fault driver, allowing recovery of economic and non-economic damages without restrictions.

Bottom Line

You can say what you want about no-fault systems or at-fault systems. You can point out the benefits and liabilities of both. You can say varying monetary thresholds and definitions of serious complicate everything unduly. And regardless of what you say, you can likely make a sound argument for your case. But with all the variables and vagaries, you can’t say auto insurance is a commodity.

That’s why you should look at sophisticated policy administration systems and choose wisely.