Should compulsory third party insurance encompass personal injury?

The proposed compulsory third party motor insurance scheme has received a positive welcome from both the insurance industry and consumers, yet the fact is that this cover will only include damage to the vehicle. Unfortunately in South Africa, the severity of accidents often means that passengers are seriously or fatally injured.

Whilst it may be contentious, it does raise the issue of whether there is a need for some form of third party motor liability personal injury cover that would extend the level of personal injury cover currently available to consumers, in order to supplement the additional limitations imposed by the Road Accident Fund Amendment Act (RAF).

Previously passengers were only allowed to claim up to R25000 for special damages (medical expenses, loss of income and support) from the RAF; however they still had the common law right to claim the balance against the negligent driver, hence the need for passenger liability insurance cover.

Amendments to the legislation came into effect in August 2008 and now restricts injured parties to claim only against the RAF, and limiting the claim for loss and support to R160 000 per year, irrespective of the actual income loss, subject to a quarterly inflation adjustment. A claim for general damages is limited to “serious” injuries as described in the regulations of the Amended Act. However, more importantly injured parties had their common law right to claim against the driver removed. Where the right to claim for more than the restricted cover provided by the RAF is concerned, the responsibility to look for other avenues to obtain adequate personal accident, disability, health and life insurance cover now lies with the consumer.

The introduction of third party motor liability personal injury cover would mean injured parties have the option to claim additional expenses, on top of the cap imposed by the RAF. In theory, this proposal does have merit; however, if we look at similar examples overseas then this is a hugely complex issue that could result in the industry facing massive claims totalling billions of Rands.

For example, according to a report published earlier this year by Datamonitor, costs faced by the personal injury insurance industry in the UK are expected to increase from £8.4bn in 2010 to £9.7bn by 2014, driven by the growth in the number of motor personal injury claims. The report revealed that motor claims accounted for 80% of claims in the personal injury market, despite a fall in the number of road traffic accidents. This was blamed on the rise of campaigns by claims management companies seeking unnecessary costs and exaggerating claim sizes.

One of the problems with any compulsory third party insurance – be it personal injury liability or motor property liability – is working out how to fund the model adequately. This requires much thought and research, especially by actuaries involved in calculating costs of claims and thus a reasonable annual premium to fund these.

Serious personal injury can not only be devastating but may potentially leave a family in severe financial straits. However, as the example in the UK demonstrates, there are some major concerns that need to be addressed before any such scheme can be given the go-ahead in South Africa.