Reducing Accident Costs Versus Frequency
Traffic engineers typically attempt to increase driver safety at hazardous intersections by making infrastructure improvements aimed at reducing the number of collisions. What they should target instead is a reduction in the cost of accidents to drivers and insurance companies, rather than a reduction in frequency, according to Keith J. Crocker at the University of Michigan Business School.
“What is of overriding importance is the economic cost of personal injury and vehicle damage, not simply the rate at which accidents occur,” said Crocker, the Waldo O. Hildebrand Professor of Risk Management and Insurance, and a professor of business economics and public policy. “Conceivably, some intersection improvements might not lower the number of collisions but they may reduce the severity of accidents and, subsequently, the dollar amount of insurance claims.”
Crocker collaborated with David J. Feber, a graduate of the U-M Business School’s evening MBA program who now works at McKinsey & Co., and Judith M. Feldmeier, a senior vice president of AAA Michigan, on the research effort. Their study, titled “The Economic Effects of Road Safety Improvements: An Insurance Claims Analysis,” is forthcoming in the Journal of Risk and Insurance.
Crocker and his co-authors collected data from three sources---Michigan State Police accident reports, intersection improvement records from the City of Detroit and claims information from a major automobile insurance company (AAA Michigan). Using this information, they tried to determine the effect of specific intersection improvements on the actual insurance costs arising from automobile accidents at 62 intersections in Metro Detroit between 1994 and 1997. The improvements included upgrades to existing traffic signals, the addition of left-turn lanes (either through re-striping or widening) and the addition of left-turn arrows to the traffic signals.
Their findings show that modernizing or installing a new traffic signal reduced the frequency of collisions at an intersection but did not affect the cost. However, adding a left-turn lane reduced the dollar amount of insurance claims for the entire intersection by $3,099 per month, or more than $37,000 annually. The installation of a left-turn arrow did not have a statistically significant impact on costs.
“Improving traffic signals seems to have reduced the number of fender-benders but did not curtail costly head-on collisions,” Crocker said. “As it turns out, the biggest payoff came with adding left-turn lanes, which don’t cost that much, yet greatly reduced the severity of accidents.”
Traffic engineers, he adds, could make more cost-effective planning decisions on intersection improvements by talking with insurance companies about the ways to reduce the economic toll of accidents rather than focusing solely on accident rates.
Crocker is a member of Michigan’s Agent Education Advisory Committee, which evaluates pre-licensing and continuing-education requirements for insurance agents. He also has written numerous papers on issues impacting the insurance industry for professional journals.
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