The Economic Effects of Road Safety Improvements: An Insurance Claims Analysis

By Feber, David J.; Feldmeier, Judith M. et al. | Journal of Risk and Insurance, December 2003 | Go to article overview

The Economic Effects of Road Safety Improvements: An Insurance Claims Analysis


Feber, David J., Feldmeier, Judith M., Crocker, Keith J., Journal of Risk and Insurance


ABSTRACT

This article demonstrates the feasibility of exploiting insurance claims data to estimate the marginal benefits to society of highway infrastructure improvements. We construct a unique database linking claims expenditures for a major auto insurer in Michigan to infrastructure investments at 62 intersections in the City of Detroit, and conclude that the addition of a left-turn lane, or left-turn phase in the signal, decreases the insurer's average monthly claims costs at a representative intersection by $944 or $1,062, respectively. The evidence also indicates that these cost savings are a result of reductions in accident severity, rather than being a consequence of fewer accidents.

INTRODUCTION

It is well known in traffic engineering circles that intersection improvements may increase driver safety by reducing the incidence of automobile accidents. (1) What is less well understood is the extent to which improvements in intersection infrastructure impact on the economic costs of such accidents to drivers. (2) This omission is particularly striking since the application of cost-benefit analysis to the disposition of scarce highway improvement funds requires a monetary estimate of the likely benefits that can be compared to the attendant costs. The contribution of this article is to provide such estimates.

The traditional emphasis on accident rates rather than economic costs has been a consequence of the historical collaboration between traffic engineers and governmental entities in the construction, maintenance, and improvement of highway infrastructure. Information on automobile accidents has generally been collected as a natural by-product of the government's policing activities, and these data are easily accessible to engineers and utilized for highway planning purposes. The economic costs associated with accidents, however, have fallen on the drivers and their insurance companies who have used the information gathered on accident claims for proprietary underwriting purposes. As a result, the data necessary to evaluate the economic benefits of highway infrastructure improvements have been heretofore inaccessible.

This article uses a unique data set that combines Michigan State Police accident records with intersection improvement data from the City of Detroit and the claims experienced by a major automobile insurer in the State of Michigan. By utilizing information from these three disparate sources, we obtain monthly data from 1994 to 1997 on 62 intersections in Detroit that we use to estimate the effect of specific intersection improvements, such as the addition of left-turn lanes or upgraded signals, on the actual insurance costs arising from automobile accidents.

THE DATA

The Detroit Police Department and the insurance companies that write policies in the city are the two primary sources for automobile crash information in Detroit. Since each maintains a unique and independent database, the first step in this study is to develop an integrated intersection database containing detailed collision and cost information on an intersection-by-intersection basis for the City of Detroit. The outline of this process is depicted in Figure 1.

[FIGURE 1 OMITTED]

Creating the Intersection Database

There are approximately 50,000 reported vehicle collisions in Detroit each year. When a crash occurs, a police crash report is completed by a local police officer detailing the specifics of the collision, including the location, the motorists involved, the type of crash, as well as dozens of other particulars. The local police forms are transferred to the Michigan State Police where the information is scanned into a computer database. The Michigan State Police then "sanitizes" this information by removing all personal information such as names, addresses, and drivers' license numbers, and redistributes this information to state, regional, and local road agencies for planning purposes. …

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