Compulsory third party insurance essential to reduce overall insurance premiums
Research from the South African Insurance Association (SAIA), which is currently in consultation with the government to reinstate
This is according to Christelle Fourie, Managing Director of
MUA Insurance Acceptances, who says that the high percentage of motorists without any form of motor insurance means that the minority who do insure their vehicles are being forced to subsidise others through higher premiums. "By increasing the number of vehicles that are insured on the roads, we will likely see this translate into a reduction in the cost of
motor insurance for motorists."
If the insurance industry has a bigger pool of premium contributions; this will ultimately mean that lower premiums and excesses will be passed on to consumers, as the losses of the few will be compensated by the contributions of the many, says Fourie.
Compulsory third party insurance was enforced in South Africa from 1942 up until 1997, which covered bodily injury and damage to motor vehicles, when it was replaced with the Road Accident Fund (RAF). "Whilst the RAF has provided financial aid for death and bodily injuries sustained in motor vehicle accidents, the cost of the damage to the vehicles is usually left to the consumer and the insurer," she points out.
Fourie says the idea of establishing a compulsory insurance body is particularly crucial in a country such as South Africa, where few motorists currently insure their vehicles. "Compulsory insurance is also critical for the motor industry as it will ensure an element of stability, allowing more repairs to be carried out, with the result that more of the vehicles on the road will be in an acceptable and roadworthy condition."
Despite the perception that theft of a vehicle is the main reason for insurance, the majority of motor insurance claims, as much as 80% of all claims paid, actually arise from accidents. "With so few motorists taking out insurance for their vehicles, we receive more claims from motorists who are involved in an accident with an uninsured driver than those who claim for theft of a vehicle," says Fourie.
She says that while a compulsory third party insurance scheme is still being debated, people should be aware that there are likely to be limits imposed on costs that can be recouped. "It is highly likely that the maximum amount paid out for repairs may be capped, still leaving those innocent parties with additional repair costs for their own account. However, any guilty party will still carry all their own costs."
Fourie adds that while South Africa may have to establish its own unique model to ensure any scheme is workable, the country should also look internationally for similar examples. In the UK, new legislation introduced in 2013 mean that it is also now an offence to keep an uninsured vehicle, rather than to drive when uninsured. Records at the Motor Insurance Database (MID) will now be compared with those held on the DVLA Vehicle Database in order to identify owners of uninsured vehicles and fine them.
"One of the biggest problems in establishing a workable compulsory insurance scheme will be how to fund it adequately. This requires in-depth research and a thorough evaluation, especially by actuaries involved in calculating average costs of claims and thus a reasonable annual premium to fund these."
She says that a decision on how to collect payments for compulsory insurance will also need to be addressed, as the insurance is likely to be attached to the vehicle itself rather than the owner. "Either way, the cover will have to be compulsory, governed and enforced by legislation."
Fourie says one of the suggestions currently being debated is that the insurance levy may be collected when the license disc is renewed. "This makes sense in terms of ease of legislating and collecting the payment, however, this could prove problematic if the annual premium is quite high."
There are still many issues to iron out before South Africa is likely to see compulsory insurance introduced. "Until such time as that does happen, all motorists are encouraged to take out a proper insurance policy, even if it is only third party cover," concludes Fourie.
