University of California Transportation Center

Traffic accidents are inevitable, albeit undesirable, outcomes of vehicular travel. They impose a heavy burden to individuals and society. The most obvious individual costs are related to bodily harm, damaged property, and lost time. Even those not involved bear a cost in terms of insurance premiums to offset the risks of driving. We rely on the private market to establish the price for coverage, with state oversight to address potential problems of market concentration, imperfect information and moral hazard. The fairness of variations in premiums hinges in part on the use of unbiased actuary rates, but this is a necessary bur not sufficient condition. Differences are questionable when based on discrimination or when externalities are present.