One of the central flaws in the tort insurance market is the perverse incentive structure created by ever-increasing awards for pain and suffering damages. Cornell University Law Professor Charles Wolfram notes that "[p]ain and suffering and similar nonmonetary damages probably average three times the monetary damages in personal injury claims."[7] In other words, for every $1 in claimed damages, another $3 is awarded for pain and suffering damages. The historical development of this practice is complex in its origins, but this legal structure quite obviously presents an enormous financial incentive to inflate economic and medical damages.

      The existence of incentives to inflate medical damages is evident in the experience of several no-fault insurance states. Hawaii and Massachusetts, for instance, have attempted to correct the perverse incentives noted by Wolfram by establishing medical/economic damage "thresholds." In order to recover pain and suffering damages, individuals must have medical/ economic damages above this threshold. However, rather than exclude minor cases, the threshold mechanism induces many claimants to inflate medical claims through additional, and often unnecessary, visits to the doctor in order to reach the threshold. After Massachusetts raised its tort threshold from $500 to $2,000 in 1988, the median number of treatment visits rose from 13 to 30 per auto injury claim.[8] In Hawaii, where the threshold was $7,000, the median number of visits to chiropractors was 58 per claimed injury.[9]