This paper considers how the insurance sector could improve road safety outcomes at lower cost. Insurers can influence road safety outcomes in a number of ways but the regulatory environment limits their incentives and flexibility to address road safety.

The paper considers reforms to improve insurer incentives and flexibility to manage road safety based on two scenarios.

• Scenario 1 (the “UK-Scenario”) whereby (as in the UK and other jurisdictions) insurers have liability for both BI and property damage claims and can price premiums based on individual risk, and
• Scenario 2 (the “Optimal-Scenario”) whereby insurers also have the societally optimal incentives for safety.

Under both scenarios insurance premiums would be more risk-based and encourage insurers to offer financial incentives for safer choices and behaviour. Empirical evidence and expert opinion provide strong support for risk-based insurance premiums over the status quo. The potential safety benefits are examined in terms of whether, what and how people drive.