CONFERENCE on R egulatory I mpact A ssessment Ankara - 19, 20 and 21 April, 2006

1. CONFERENCE on Regulatory Impact Assessment Ankara - 19, 20 and 21 April, 2006 PART II : 19 April 2006 pm Good RIA practices in selected EU member states The mandatory helmet case in Italy 1. Regulation in ITALY Mario Martelli [m.martelli@agora2000.it]

2. Contents Challenging an Italian icon: the moped and personal freedom • The case concerns the introduction of mandatory helmet requirements for moped drivers in Italy, a change from the previous legislation that required helmets only for drivers under 18 years. • This case study examines an IA developed in 2000 within the ‘Special RIA Project’ organized by the Italian Presidency of the Council of Ministers. The special RIA Project introduced RIA for the first time in Italy.

3. The end of freedom: Content of the helmet law The regulation mandating helmets for everybody (Law 472/99) became effective on 1 April 2000. Consumers • Fines for those who drive without a helmet range from €0 to € 120. The driver is responsible for the passenger. If the driver is a minor, the vehicle is seized for 30 days Producers • Fines are possible for those importing and selling ‘not compliant helmets’: from € 600 to € 2400

4. Audrey Hepburn and Gregory Peck – lawbreakers

5. What was the problem? The cost of accidents… • Total cost of road accidents (estimated 1997) was equal to 22 billions Euro per year • Sanitary cost of road accidents, estimating ordinary hospitalization expenses, in 1994 found an average cost of ITL 5.3 million (Euro 2,500) per injured Also counted: • Community total cost and expenses due to fatality, injuries and damages to property caused by road accidents • “Parameters adopted by countries with mobility and road accident conditions not different from Italian ones, corrected on the base of sanitary cost analyses by the Italian Health Institute and of data relative to total amount of the accidents”

6. …particularly head injuries. The sanitary cost for head-injuries on mopeds was estimated at 131 billion Liras a year (or 65 Meuro), while indirect costs (based ‘on epidemiologic data of head-injured mortality and invalidity from road accident on mopeds’), were estimated at 700 billions Liras, a year at minimum (or 350 Meuro) (Source, The Italian Health Institute exploratory studies on the hospitalization costs estimate [on a sample of 396 cranial traumatized during the period 1984-92]

7. Estimating the baseline: Trends in moped accidents … • Analysis of trends in accident phenomenon in Italy considered the pool of official sources: road safety data and accessory sources such as ISTAT (Italian Central Statistical Office), Statistica degli incidenti stradali, 1998, National Health System, Statistiche sanitarie, Ministry of the Interior - State Police, Dati sulle violazioni del Codice della strada (anni ’90), ACI, national statistical System, Annuario statistico. Automobilismo e trasporti, 1998, statistics elaborated by ECMT (European Conference of Ministers competent in transports matters) and by European-EUROSTAT Commission DGVII. • Investigation of motorcycle circulation (data on use and market tendencies) was possible thanks to case surveys and study references: ACI-Censis-Piaggio, Rapporto due ruote 1998, 1999; SWG, Research Integrated Services, Public opinion poll on “Il casco obbligatorio?”, 1999; Censis, Il valore della sicurezza: il costo socio-economico dell’incidentalità stradale, 1990; Eurispes, Il casco, due anni dopo, 1988; Dall’epidemiologia degli incidenti stradali alla valutazione dell’efficienza delle azioni di prevenzione , in proceedings from the 54 Conference on Traffico e della Circolazione, Riva del Garda 7-10 October 1998, p. 294.

8. … showed an increase over time • The analysis points out a road accident increase of 1.9% compared to the previous year, and 2.1% increase of the number of injured. • Such a tendency becomes more relevantif only mopeds and motorcycles are considered: in 1997, in proportion to the traffic volume, accidents relative to this type of vehicles had the most elevated mortality rates (11.3% of the total for mopeds; 8.3% of the total for motorcycles) • Above all, the increase in the number of injured was ‘totally determined by accidents involving mopeds and motorcycles’ (in 1997, 9,128 injured more were registered in relation to the previous year).

9. But what about the benefits of helmets vs. no helmets? This is a convincing pattern. • But is the “road accident total cost” estimate sufficient to define the problem we are facing? • Are we missing pros and cons from the community point of view?

10. Other evidence considered (1) There is empirical evidence on foreign experiences similar to the Italian one that demonstrate the effectiveness of requirements for helmet use. In the USA, mandatory helmet use brought a 30% decrease in fatal road accidents

11. Other evidence considered (2) • Pressures from the EU: Policy officials must also consider the Road Safety European Program, which calls for a car accident mortality reduction of 40% in 15 years (from 1995 to 2010) (European Commission, Road Safety Promotion in the European Union: 1997-2001 program, Com (97) 131 def.) • Pressures from Italy: A request to make public action more consistent with the Italian 1998-2000 National Health Plan. The objective of the NHP was ‘to reduce road accident mortality by an average of 20%, and not less than 20% for the 15 to 24 age group, and recommending - among the priority actions - the increase of ‘helmet use for two wheel motor vehicles drivers’.

12. Who would benefit from regulation? RIA identified a number of direct and indirect regulatees. • Among the direct ones are moped drivers, 7 million in 1998. Data confirmed by the number of moped number plates from the Italian Driver and Vehicle Licensing Agency to drivers over eighteen: the series for the years 1993-1998 is approximately 7 million • Others include helmet dealers and importers or producers on the national territory (21 enterprises in Italy), as well as mopeds (and motorcycles) dealers, importers or producers on the national territory (9,232 enterprises with 19,718 employees)

13. Public opinion was generally favorable The analysis also points out how the values of the general public could be considered: • the opinions of direct beneficiaries and public opinion in general on mandatory helmet use were revealed by surveys carried out and disseminated by sectoral associations and by national and international research institutes. • There was a diffuse preference for mandatory helmet introduction for the all ages of moped drivers

14. How far do we go in considering indirect effects? The analysis considered as indirect beneficiaries only those categories for which we assumed the proposed intervention has a relevant impact The users’ families were excluded, because RIA would be difficult and impractical.

15. A weakness: poor consultation on risk valuation • In RIA, consultation is a fundamental part of the information collection. • In this case, consultation was not carried out, although it could have greatly improved the RIA CBA by collecting information on relative to willingness to pay (WTP) for extra-market assets (as in this case regarding the value of specific safety risks)

16. Are there other relevant stakeholders? • Motorbike and motorcycle dealers, importers or producers • Motor vehicles (3/four wheels) dealers, importers or producers (remarkable ex-post unforeseen effect on this category after the new regulation) • Building companies active in public works (roads) • PR and publicity agencies (regulation through information for a public campaign) • Insurance companies (huge decrease in disbursements) • Associations of civil society representing ‘victims for road accidents’ • Persons and entities representing biomedical research and special sanitary services

17. Some people will be harmed by the regulation Different stakeholders will have different opinions and points of view about costs and benefits Other stakeholders who might be considered is the category of ‘sick people on a waiting list for organ transplants’: for them, the PROS of the direct beneficiaries are to be considered CONs.

18. Considering regulatory alternatives The analysis considers (and rejects) a number of regulatory alternatives. Among these are: • the “deregulation or simplification option” (which reduces, simplifies or repeals, totally or partially the legislation in force), • the “differentiated regulation” option (regarding application spaces and/or driver categories), • the “voluntary regulation” option (with information-sensitisation campaigns)

19. The cultural ineffectiveness of voluntary options • Voluntary and incentive options could induce moped drivers to purchase helmets, yet in practice they do not seem to change behaviour in Italy. This failure is connected to the insufficient circulation of road safety culture in Italy, and to the limited impact of previous sensitization campaigns for helmet use. • Therefore, these alternatives were considered ineffective (there was no supporting evidence that the objective of 40% reduction of road accident fatalities would be reached).

20. Coercive regulation seemed best • “Direct regulation” seemed to regulators to be the best choice. The rule provided for mandatory helmet use for all moped and motorcycle drivers, regardless of age and vehicle cylinder capacity, as well as for possible passengers, with fines to promote compliance. • Coercion appeared to be a suitable tool to reach the objectives. The choice to impose mandatory helmets is also based on the assumption that, in this case (the contrary of what is done for many other dangerous activities) the ‘freedom to take risks’, and the personal freedom of choice should be reduced for public purposes. The inconvenience arising from drivers’ change of behaviour was not included in relevant costs. Was this the correct approach?

21. Summarizing costs and benefits • Regulatory costs are composed of direct compliance costs from the purchase of the protective helmet (with the exclusion of motorcycle drivers already obliged by the previously enforced norm), and the increase of supervision costs by authorities. • Direct benefits are the decrease of fatality, morbidity and invalidity caused by head injuries in moped road accidents, with a consequent relative cost decrease for the people. • Indirect benefits are the decrease of health costs borne by the National Health System, as well as rehabilitation costs for social assistance and social/labour reintegration of the disabled.

22. Quantifying benefits and costs (1) • For the first year, compliance costs and direct benefits are attributed to all moped drivers, both minors or adults, who do not have, and do not wear a helmet, estimated to be 80% of the circulating fleet. • For the next 4 years, an increase of 200.000 helmet purchases a year is foreseen, connected with new moped purchases and helmet substitutions. • For the estimate of the effect on fatality and invalidity, we referred to the scientific literature, which says that the estimated percentage of damage reduction increases directly with the increment of use prevalence: the empirical evidence estimates a percentage of 39.7%.

23. Quantifying benefits and costs (2) • Circulating fleet: about 7.000.000 mopeds with use prevalence: 20%, and number of new helmets per year: 200.000. • Average cost per unit of protective helmets: 85,000 Liras (or 40 Euro). • Annual average cost for additional vigilance activity: 20 billion Liras (or 10 Meuro). • Head-injury fatalities per year due to moped road accidents: 378 unit/year (ISTAT statistics show that the trend of fatalities per road accident involving motorcyclists is around 700 units/year. Considering that approximately 55% of these subjects died because of head injury, we have 378 deaths due to head injuries. Assuming a damage decrease equal to 39.7%, according to the Italian Health Institute estimate, deriving from an immediate use prevalence of 80%, benefits for moped drivers can be estimated to be a reduction of 150 fatalities per year. • Annual head-injury disabilities due to moped road accidents: 756 (in average, 2 serious disabled per fatality). The annual decrease in serious disabilities is 300 serious disabilities avoided per year. It was estimated that the damage decrease in the first year is 50%, the second year 60%, the third 70%, while in the last two years reaches 100%. • Annual direct cost for head-injury hospitalisation: 131 billion Liras. Assuming a damage decrease equal to 39.7%, and estimating the total cost of head-injury hospitalisation due to moped road accidents of 131 billions Liras, the benefit for the National Health System can be quantified as 52 billions Liras.

24. Quantifying benefits and costs (3) • The analysis used the quantification of a statistical human life (1,4 billion Liras or 700,000 Euro) and of a serious accident (0,320 billions Liras) according to assessments in 1999 by the Italian Health Institute, using the method of foregone income. • From the theoretical view, such criteria provide public decision makers with parameters of the value of extra-market assets. Such monetary values can be very different when 2004 insurance market parameters are used. • The use of values drawn from the insurance market (not really competitive in Italy) has a problem of adverse selection according to which ‘... insured (consumers), knowing their health status have an advantage on the insurer (producer) in terms of knowledge of the risk grade to which they are exposed. If this last one was able to vary the policy price, based on the individual relative risk, that is if he had perfect information, he could satisfy every citizens request... ‘

25. Results of the RIA Discounting the cash-flow over five years with a discount rate of 5%, a NPV is obtained of approximately 295 billion liras (or 150 Meuro). This is the sum of benefits of the new regulation less the relative costs • A sensitivity analysis shows: with a +20% of costs the NPV goes to 278 billions liras, with a -20% of benefits the NPV goes to 64 billion liras, while with a +20% of costs and a - 20% of benefits the NPV goes down to 47 billion liras. • Evidently, in this case, the benefits estimate becomes crucial, while the compliance cost account is relatively less important.

26. Critical questions raised by this RIA The value of avoiding risk and a statistical human life What’s the right price? Would a more risk-based insurance market work better than regulation? Are insurance costs and benefits applicable for public choices? Is it true that ‘a Euro saved is a Euro gained’?