It's the nature of realtime physics that when you feed in extreme circumstances (collisions) outside of the normal operation of the physics engine (racing) that it just can't cope with the values involved because you are suddenly operating outside of normal parameters.
To solve this LFS would need to massively increase the number of physics calculations per car which would raise the CPU requirements of the simulation immensely, and you can't have an option that "turns this on for high spec computers" because the car needs to process the same on all machines playing the game.
The solution is twofold. Firstly LFS handles collision intensity by measuring the overlap of the 3d objects, this doesn't work well because if you travel at 20mph and are 19 'mph' away from an object, the next phase would see you overlapping by 1mph. If however you are 1 'mph' away from an object the next phase you would overlap by 19mph... An impact 19 times as intense despite you travelling at 20mph in both examples.
The example above is quite extreme because actually LFS is dealing in fractions of a mph per physics cycle - but when you consider the force of a hard impact it's easy to see how such a system just falls apart at the knees and how two collisions at the same speed can have massively different results.
This collision system obviously needs to be done away with for one that works on the speed and mass of objects, but it is infinately more complex to integrate into the car physics system - so either we have to wait a long time for it, or LFS needs to run a parallel physics system that comes into pay when a collision is detected.