The Moral Hazard Effect of Vehicle Insurance on Road Safety in China

Abstract:

Road traffic injuries and fatalities have been an increasingly severe public health problem in China. In order to provide victims with basic financial protection, since 2006, all the vehicles ran in China are forced to be insured by compulsory third party insurance. However, according to the textbook economic model, the compulsory insurance decreases the motivation for drivers to spend care when driving due to moral hazard effect. To test whether the moral hazard effect of compulsory insurance exists in China, we empirically reviewed the data obtained from Guangdong, China by using logistic regression. Evidence supports the moral hazard effect showing that the likelihood for the insured drivers to be involved in speeding is 1.182 times higher than their uninsured counterpart in China. Also we found that the speeding probability for insured drivers decreased by 14.679% when China introduced floating premium regime.

• Periodical: Advanced Materials Research (Volume 905)
• Pages: 781-785
• DOI: https://doi.org/10.4028/www.scientific.net/AMR.905.781
• Online since: April 2014
• Authors: Guang Nan Zhang*, Xiang Pu Gong, Yong Liang Zhao
• Keywords: Accident, Insurance, Moral Hazard, Road Safety

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