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Insurance Incentives and Road Safety : Evidence from a Natural Experiment in China

we investigate the effects of the insurance incentives on safe driving by evaluating both the accident frequency and accident severity following the reform of the insurance pricing mechanism introduced in the city of Shenzhen in China. Our contribution to literature is a clean identification of causal effect of insurance incentives on road safety by employing the difference-in-differences methodology in the framework of a natural experiment. We find that increasing insurance incentives can reduce accident frequency significantly. These results are robust to the inclusion of controls, alternative definitions for accident frequency and the placebo experiments. Moreover, the impact of basing insurance pricing on traffic violations is bigger than on past claims. The impact of insurance incentives on accident severity is inconclusive and insignificant.