On 12 February 1974, a limited no-fault insurance system was introduced to cover persons killed or injured in road accidents in Victoria, Australia. This system supplements the existing compulsory third party insurance system, under which payments are made only if an insured driver can be shown to be negligent.

The costs of the no-fault benefits are met by compulsory third party insurers, who are allowed to charge not more than the premium fixed by the Government. This paper examines the adequacy of the no-fault component of the premium.

A theoretical model has been developed, covering all the components of compulsory third party and no-fault insurance. This model incorporates the limited available accident and insurance statistics, together with a number of assumptions. As in many practical situations, the limited data available has severely restricted the factors considered, and has reduced the reliability of the estimates made from the model.

The theoretical model does however:

—indicate approximately the premium required for no-fault benefits

—suggest areas where statistical investigation would be valuable

—provide estimates for different types of benefits to different groups of persons, which can be checked as more data becomes available

—provide useful data when considering other forms of no-fault insurance, such as the national rehabilitation and compensation scheme currently being considered by the Australian Government.