Question

Explain what might happen to accident rates if compulsory auto liability insurance laws were repealed and tort liability were restricted without mandating the purchase of PIP coverage. How could the government promote greater driving safety if these changes were made?

Answer 1

Once someone buys an insurance he/she becomes a bit careless, since at the back of mind it is there that the liabilities and damages will be covered by the insurance. If the compulsory auto liability insurance were repealed, majority of people will not buy insurance due to endowment effect - people are reluctant to pay money out of pocket. But once they have it in their mind that they are not insured, they will tend to be more cautious while driving. This may bring down accident rates

Hence government can promote greater driving safety through these changes. However, in-case an accident happens and some third-party is injured, and the driver is not in a financial position to support the medical expenses, it will become a burden for the victim. Hence general health insurance coverage should be increased by the government as part of budget expenditure