An examination of the relationship between vehicle insurance purchase and the frequency of accidents

The relationship between insurance, occurrences of road traffic accidents (RTAs) and general traffic safety has received growing attention over recent years among academics, industry practitioners and government policymakers. Using data on vehicle damage insurance in Taiwan, we examine whether drivers with higher insurance coverage are more likely to be involved in RTAs, and whether the relationship is moderated by the gender of the insured party as well as the age of both the vehicle and the insured party. Using a probit regression, we identify a positive relationship between coverage and claims and find that an insured party with a poor claims history has a higher probability of being involved in RTAs. Although our findings provide support for adverse selection theory, when considering the moderating effect of vehicle age, the positive relationship between coverage and claims becomes insignificant; indeed, vehicle age weakens the positive influence of coverage on claims. Our results suggest that drivers with a poor driving record purchasing higher insurance coverage for their new vehicle tend to be involved in more RTAs and submit more insurance claims.