"Moral Hazard" on the Road

Can insurance be related to a rise in traffic deaths? A study by Alma Cohen and Rajeev Dehejia is worth a look. This is interesting for Irish readers who pay exorbitant rates, things are done differently in other countries…

To the roll of highway perils—drunks, cell phones, teenagers—can be added one more: the insured. A new study suggests that requiring insurance coverage may lead drivers to take a cavalier attitude toward road safety. Economists from Columbia University and Harvard Law School’s Olin Center for Law, Economics, and Business examined the effects of the compulsory-insurance laws and no-fault insurance systems that were gradually adopted in the United States from 1970 to 1998. (Under no-fault systems each driver’s insurance pays for the damages that he or she inflicts, though all states give drivers some exposure to lawsuits for negligence. Under older, fault-based systems, the at-fault driver pays all the damages.) Forty-five states now have compulsory insurance, and fourteen have no-fault systems. The researchers found that relaxation of liability is correlated with a 10 percent increase in traffic deaths (or about 4,000 dead travelers a year). Uninsured drivers tend to drive more carefully (after all, they themselves have to pay for accidents): for every one percent decrease in the number of uninsured drivers, the number of fatalities increases by two percent. Despite the “moral hazard” posed by insurance, the authors concede that compulsory and no-fault systems aren’t all bad: though more people may die, the victims’ families are far better remunerated than in the past.