Do you think road accidents have any connection with Vehicle insurance?
Though it seems that it can’t be connected but research shows that it definitely has some connection. Human tendency is to drive safely when the owner has to bear whole cost of accidental damages. If no one has insurance then everyone will care about their vehicle. The drivers will try to drive more safely. Researchers named this as Moral-Hazard problem. Moral-hazard problem occurs when one side of an economic relationship takes undesirable or costly actions that the other side of the relationship cannot observe. The theory of moral hazard suggests that an insured driver, who bears less than the full
cost of a collision/accident, will drive less carefully than an uninsured driver. When a state makes car insurance compulsory and thus decreases the number of uninsured drivers, roads become more hazardous: the number of collisions and number of traffic deaths increase. Roads become more dangerous because the newly insured drivers drive less cautiously.
Insurance companies use various measures to decrease the moral hazard problem. One of the way is to provide rebate of 5-10% on premium amount yearly if insurer did not claim for damages due to accidents (meaning if they drove their vehicle safely). So if insurer pay $1200 per year for insurance then he gets rebate of $60-120 if he drives safe. This policy encourages safer driving and can reduce the moral-hazard problem.
Source: Alma Cohen and Rajeev Dehejia,”The effect of automobile insurance and accident liability laws on traffic fatalities”, Journal of Law and Economics XLVII (2004), pp 357-292