An insurance based approach to safer road use
A challenge in achieving safer road use is that the financial incentives for drivers and their insurers for safer road use are significantly lower than the benefits; that is, the financial consequences of a road crash fatality, and to an extent serious injury, are far less than the economic benefits of prevention. This paper explores policy changes to address this imbalance. This paper uses economic and policy analysis to examine the financial arrangements and implications; this incorporates analysis of economic theory, existing empirical research and practical considerations in assessing policies to address the issue of incentives for safer road use. The paper closely examines an insurance based model whereby insurers are given optimal incentives to encourage safer road use and related decisions. This alternative is examined in light of technology and social trends, behavioural biases of road users and the legal and policy environment. The current financial incentives for safer road use are significantly distorted from what is optimal. The distortion can potentially be addressed with an insurance based solution. Such a solution could be efficient and effective, be cost reducing and lead to safer road use among all road users. There are a number of issues for consideration but none appear insurmountable. This paper highlights the need to reform existing insurance schemes to facilitate usage-based insurance pricing to improve road-safety. Now that technology enables monitoring of safe driving, the current arrangements have the effect of taxing safer driving and subsidising un-safe driving. An insurance based solution involving appropriate financial incentives for safe road use has significant potential to provide substantial benefits to all road users and reduce on-road costs. Implementation path-ways and research priorities are identified.