Drivers licence demerit system

The driver's licence demerit system was introduced in the City of Tshwane as a pilot for the national system in July. What will be the effect on insurers and on your clients?

The aim of the of the Adjudication of Road Traffic Offences (AARTO) is to remove all dangerous drivers from South Africa's roads, by suspending or revoking their licences based on an annual point system. The demerit system should be up and running and fully operational nationwide by 2010.

Every driver will be awarded 12 points. If you lose those points through 12 demerits in a year, your licence will be suspended and you receive a stiff fine. After three suspensions, your licence will be cancelled. So strict are the new regulations that you could have your driver's licence suspended immediately if, for example, you are speeding, not wearing a seatbelt or left your licence at home.

Impact on insurance

"Insurance companies will be allowed to have access to the data which will enable them to use the information at the underwriting stage," says South African Transport Minister Jeff Radebe.

The driver's licence demerit system was introduced in the United Kingdom a number of years ago. "Brokers are not feeling the pinch of the demerit system. The increase in premiums has forced licence holders to adjust their driving to suit the changes in the legislation," says Sue Winston, spokesperson for Norwich Union. "Nearly seven million UK drivers have demerit points on their licence. This leaves the British insurance industry millions of pounds from increased insurance premiums charged to those with demerit points."

"With vehicle accidents accounting for about 75% of the cost of motor insurance claims, some SA Insurers have advised that they will consider an individuals demerit points at underwriting stage", says Douglas Donnelly, CEO of CIB Insurance.

"The demerit system will allow us to distinguish between drivers that have a general apathy towards the laws on our roads and those who drive responsibly, which in turn will enable us to assess each client on merit and charge more appropriate premiums based on driver behaviour,"

Positive industry reaction

Local insurance companies have eagerly welcomed the new system that will allow them to profile their clients and adjust individual insurance premiums according to the demerits.

"We support this initiative as it places emphasis on encouraging drivers to drive safely," says Pieter Erasmus, Head of Marketing for Momentum Short-term Insurance (MSTI). "The system is designed to consciously increase awareness and accumulatively penalise repeat or reckless offenders.

"We feel that this will have a positive effect on the overall behaviour of drivers. For motorists this is much safer, and for the insurance industry better driving equals fewer claims and ultimately lower insurance premiums. Responsible road users benefit us all."

Implications for brokers

Brokers must advise their clients of the impact the new system will have on their insurance. There will possibly be premium increases every time a licence is suspended.

With regard to vehicle financing, a motorist who loses his driver's licence through the demerit system might continue to own and finance his or her vehicle, but will be unable to drive it. He or she will also have to continue insuring the vehicle.

In addition, clients risk losing their drivers licence completely, a very serious problem in a country in which the public transport is far from the standards elsewhere around the globe.