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First-Party Versus Third-Party Compensation for Automobile Accidents: Evidence From Canada

Authors

  • Mary Kelly,

    1. Mary Kelly is an Associate Professor in the School of Business & Economics, Wilfrid Laurier University, Waterloo, Ontario, Canada N2L 3C5; phone: (519) 884-0710, ext. 2551; e-mail: mkelly@wlu.ca. Anne Kleffner is an Associate Professor in the Haskayne School of Business, University of Calgary, Calgary, Alberta, Canada T2N 1N4; phone: (403) 220-8596; e-mail: Kleffner@ucalgary.ca. Maureen Tomlinson is Manager, Business Services for The Economical Insurance Group in Kitchener, 111 Westmount Road South, Ontario, Canada; phone: (519) 570-8500, ext. 42502; e-mail: maureen.tomlinson@teig.com. The authors would like to thank the insurance company executives who provided insight and feedback for this project. We are also grateful to David Chan for research assistance on the project, Gilles Bernier for helpful comments and assistance in obtaining data, and the Insurance Bureau of Canada and Manitoba Public Insurance for providing data. This article was subject to double-blind peer review.
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  • Anne Kleffner,

    1. Mary Kelly is an Associate Professor in the School of Business & Economics, Wilfrid Laurier University, Waterloo, Ontario, Canada N2L 3C5; phone: (519) 884-0710, ext. 2551; e-mail: mkelly@wlu.ca. Anne Kleffner is an Associate Professor in the Haskayne School of Business, University of Calgary, Calgary, Alberta, Canada T2N 1N4; phone: (403) 220-8596; e-mail: Kleffner@ucalgary.ca. Maureen Tomlinson is Manager, Business Services for The Economical Insurance Group in Kitchener, 111 Westmount Road South, Ontario, Canada; phone: (519) 570-8500, ext. 42502; e-mail: maureen.tomlinson@teig.com. The authors would like to thank the insurance company executives who provided insight and feedback for this project. We are also grateful to David Chan for research assistance on the project, Gilles Bernier for helpful comments and assistance in obtaining data, and the Insurance Bureau of Canada and Manitoba Public Insurance for providing data. This article was subject to double-blind peer review.
    Search for more papers by this author
  • Maureen Tomlinson

    1. Mary Kelly is an Associate Professor in the School of Business & Economics, Wilfrid Laurier University, Waterloo, Ontario, Canada N2L 3C5; phone: (519) 884-0710, ext. 2551; e-mail: mkelly@wlu.ca. Anne Kleffner is an Associate Professor in the Haskayne School of Business, University of Calgary, Calgary, Alberta, Canada T2N 1N4; phone: (403) 220-8596; e-mail: Kleffner@ucalgary.ca. Maureen Tomlinson is Manager, Business Services for The Economical Insurance Group in Kitchener, 111 Westmount Road South, Ontario, Canada; phone: (519) 570-8500, ext. 42502; e-mail: maureen.tomlinson@teig.com. The authors would like to thank the insurance company executives who provided insight and feedback for this project. We are also grateful to David Chan for research assistance on the project, Gilles Bernier for helpful comments and assistance in obtaining data, and the Insurance Bureau of Canada and Manitoba Public Insurance for providing data. This article was subject to double-blind peer review.
    Search for more papers by this author

Abstract

Insurance regimes for compensating losses arising from automobile accidents vary by jurisdiction, ranging from a pure tort system to a pure no-fault system, with both systems having well-documented benefits and costs. The majority of published research focuses on the benefits and costs associated with the compensation for bodily injury. This article extends the existing literature by examining the differences between first-party and third-party recovery for both physical damage and bodily injury losses in Canada. Our comparison of auto insurance costs per insured vehicle suggests that government-run, pure no-fault provinces have lower average costs than provinces with private tort and modified no-fault. Lower costs arise from the elimination of tort costs associated with noneconomic damages, lower claims settlement costs due to first-party compensation, and scales of economy arising from monopoly power. The second goal of the article is to examine the impact of first- versus third-party compensation on the settlement of property damage claims. We analyze the claim files of a large insurer that operates within both a traditional tort (third-party) environment and a first-party recovery environment for property damage. We find that in a first-party recovery regime claims are settled sooner, settlement costs are lower, and not-at-fault drivers are compensated at a higher rate than in the traditional tort environment.

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