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The Cost of Car Crashes

An article from 1999 suggested that car crashes caused a financial loss in OECD countries equivalent of 2% of their entire economies [1]. An article from the Sydney Morning Herald in 2001 gave a conservative estimate of the cost of a road fatality at $1.5 million [2], it also notes that due to different analysis methods American transport economists derived a figure of $5.5 million. $1.5 million in 2001 adjusted for CPI would be close to $2 million now.

Currently that $2M cost is an externality of the car industry. Most of it is paid by the government, IE we all pay for it through our taxes. This means that there is little financial incentive for drivers and car companies to make the roads safer. Many of the attempts to legislate road safety fail due to the legal system being unable to manage the rapidly changing range of vehicles on the market.

The insurance companies have very detailed analysis of the relative safety of vehicles, so it seems that the only sensible way of enforcing safe driving is through economic measures implemented via insurance.

I believe that for every person who is killed or seriously injured on the road a fine of $2M should be levied. Every driver should be compelled to have insurance to cover such fines (driving without insurance should be illegal).

Then the government could cease being involved in regulating what types of car someone can drive. If someone who is less than 25 years old can get insurance for a turbo-charged car then it probably means that a statistical analysis suggests that the combination of driver and vehicle is likely to be reasonably safe (EG there are many turbo-charged cars on the market that are not particularly fast).

Now this will increase the car insurance costs for everyone, but it will decrease the amount of general tax money that is spent on issues related to road fatalities, which would allow the income tax rates to be decreased. This means that any tax-payer who has a good driving record and who drives a type of car that tends not to be crashed could expect to save money overall. Any tax-payer who doesn’t drive a car would save even more money.

But the main point of this idea is to increase road safety by forcing bad cars and drivers off the road. Currently defective cars are only removed from the road if police notice something unsafe about them and cite them for being unroadworthy – this only happens if it’s a problem which can be observed from outside the vehicle (EG worn tires or broken lights). In some states elderly drivers have no requirement for periodic health checks to determine their ability to drive, I know of one case of a woman who was certified as legally blind, ordered a white cane, and then drove home afterwards! I’m sure that insurance companies would implement whatever tests are necessary to reduce the risk of being hit by multiple $2M fines from a single crash.

4 comments to The Cost of Car Crashes

  • Dean

    Nice idea, one nitpick:
    “In some states elderly drivers have no requirement for periodic health checks to determine their ability to drive, I know of one case of a woman who was certified as legally blind, ordered a white cane, and then drove home afterwards! I’m sure that insurance companies would implement whatever tests are necessary to reduce the risk of being hit by multiple $2M fines from a single crash.”

    I’d be surprised if her insurance policy covers her in the event of a crash anyway, I imagine the government would be stumping up that $2M as the average driving old blind lady isn’t a millionaire.

    I haven’t read a policy in full in a while, a clause saying “if your car is unroadworthy then your cover is cancelled” wouldn’t be surprising, though possibly hard to prove if it’s been in an horrific accident.

    At least in the UK all cars older than three years old have to have an annual check to get insurance and car tax anyway.

  • Donald Gordon

    What about people who need to be able to drive (to get to work, etc) who under such a scheme would suddenly be unable to afford their insurance? There are plenty of cities where a car is a necessity. They’ll just end up illegally driving without insurance, and you’re back where you started.

    Better driver education and testing, sure. But bad drivers need to get to work too, and an insurance based scheme isn’t going to improve public transport.

  • etbe

    Dean: An insurance policy such as I suggest would have the government as a beneficiary. The way insurance works is that the policy is void if the beneficiary does something to cause the event in question, but if some other person does then it has no affect. If however a fatal crash was caused by roads that the government had not properly maintained then the insurance company might have grounds for voiding the policy.

    As for voiding a policy in the case of an unroadworthy vehicle, I’m sure that’s somewhere in the fine print of all policies. One issue is proving it after the fact (the evidence may be destroyed or require significant forensic work to discover). Another issue is the situation where the driver dies in a crash. If an insurance company refused to pay out in that situation the TV news shows would crucify them, the cost of a replacement car is nothing compared to the bad PR. But again when the government is the beneficiary the policy would still be valid if the car was unroadworthy – it would be the job of the insurance company to change the premiums according to the risk or cancel the policy if appropriate.

    Checking cars every year makes a lot of sense.

    Donald: If someone is driving a car that is safer than average then the savings from a reduction in income tax would exceed the extra insurance costs. If they have an unsafe car then they just have to buy a safe one. If they are incapable of driving safely (EG the repeat drink drivers) then they need to be prevented from driving.

    Bad drivers do not “need” to get to work. I’d rather have my tax money be spent on paying unemployment benefits for such people instead of paying for the expenses related to the deaths of their victims.

  • I completely agree with you. In Massachusetts, where I am from, insurance is mandatory and driving without it is illegal. Also, automobiles must be thoroughly inspected every year, driving with an expired inspection certificate is punished with fines and an increase to insurance premiums. All traffic incidents result in increased insurance premiums, and only years of safe driving will reduce the rates to normalcy or below.

    From what I understand, there are three types of drivers who cause the majority of car accidents: drunk drivers, young men, and the elderly.

    Driving on public roadways is a privilege, not a right, and its an incredibly valuable one. Its atrocious how many deaths and serious injuries are caused in car accidents, many to innocent victims. Why isn’t there more outrage?