Wednesday, March 24, 2010

Auto Accidents and the Recession

Has anyone seen time series data on automobile accident claims?

Many auto insurance contracts have a specified value (e.g., blue book value) for auto accident awards, and that specified value may not immediately adjust to market conditions. Thus, IF it were true that used car prices fell during the recession, this would reduce the cost to an insured driver of having an accident that "totaled" his auto, which could increase the frequency of accidents that resulted in totaled cars.

Suppose, for example, your car is insured for $5k. Before the recession, a total accident would cost you $1k plus medical bills and hassle because purchasing a similar car would cost you $6k minus the $5k insurance award. During the recession, you could replace your car for $4.5k, so a total accident during the recession would give you a profit of $500, minus medical bills and hassle. So the recession made accidents cheaper (but not necessarily free).

This does not even count the fact that you might not be working during the recession, and have less of a need for your car, or might like to replace your car with one cheaper to operate. One may also want to adjust for the fact that less driving occurs during recessions: the question is whether the driving-adjusted accident rate is higher during a recession.

I have not seen any data on this, but it's something interesting for an economist to investigate.


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