BEHAVIORAL-FACTORS AND LOTTERIES UNDER NO-FAULT WITH A MONETARY THRESHOLD - A STUDY OF MASSACHUSETTS AUTOMOBILE CLAIMS

The primary causes of rapidly increasing auto bodily injury insurance rates in the late 1980s and early 1990s are an increase in the number of claims filed per accident and the escalation of medical costs at twice the overall rate of inflation. Changes in claiming behavior can arise from the operation of a personal injury insurance lottery. Claimants, perhaps assisted by a lottery ''manager,'' make behavioral choices to incur the monetary and psychic costs of filing a fraudulent or exaggerated claim for the payment of general (noneconomic) damages as the lottery payoff. This article provides operational meaning to the personal injury lottery and evidence of its existence under the Massachusetts no-fault system with a monetary threshold for tort claims. A random sample of claims arising from 1989 Massachusetts accidents is used to identify claims for simple soft-tissue strain and sprain injuries as the likely conduit for lottery-type claims. The cost/benefit effectiveness of specialized claim handling techniques employed by insurers to expose and reduce lottery claims is explored through a model of the total auto insurance compensation.