A sensible approach to third party insurance
One of the great things about the news service run by FAnews Online is the diverse knowledge of our readership. We received numerous responses to our recent newsletter on proposals for mandatory third party insurance in South Africa. One of these dedicated readers recalled that compulsory insurance had been levied on local drivers as early as the 1960s. “The insurance disc was the same size as the car licence disc and had to be affixed to the windscreen together with the licence disc, making it easy to police,” he said.
A quick visit to the Road Accident Fund (RAF) website confirms his hunch. Compulsory motor vehicle insurance was actually introduced in South Africa as early as 1942. “The Motor Vehicle Assurance Act 29 of 1942 was the first statute in South Africa, which provided for compulsory insurance to ensure that victims could recover damages, which were caused unlawfully by motor vehicles,” says the RAF. In 1965 – following the liquidation of a number of insurance companies – the Motor Vehicle Accident fund was formed to act as a re-insurer to companies which undertook this compulsory MVA insurance. And in 1986 – in line with the Motor Vehicle Accidents Act 84 of 1986 – the statutory annual premiums were abandoned in favour of a levy on fuel sold!
Do you want third party insurance or a revamped RAF?
“The RAF Act 56 of 1996 came into operation on 1 May 1997. The Act established the present Road Accident Fund whose object it is to pay compensation in accordance with applicable statutes for personal loss or damage wrongfully caused by the driving of motor vehicles.” These facts support that South African vehicle users already pay some form of ‘compulsory’ vehicle accident insurance disguised as a general tax on fuel. The RAF receives 72c from each litre of petrol and diesel sold in South Africa (per the 2010/11 national budget). We’re being hounded for additional funds because of gross mismanagement at the RAF over time. But this argument isn’t going to get us very far. If government has their mind set on receiving another payment for third party cover then we’d better put some thought into the best possible ‘second round’ implementation.
Examples from around the globe
South Africa can learn from countries where mandatory motor vehicle insurance has been in place for many years. The United Kingdom is one such country. All vehicles must be licensed and vehicle owners have to purchase and display proof of insurance at all times. But we should heed the warnings from this developed economy too. As many as two million UK vehicles remain uninsured despite legislative intervention, indicating the need for ongoing and comprehensive policing if such a solution is adopted.
Paul, also responding to our recent newsletter, commented after working in the UAE. “The UAE operate a system of compulsory full comprehensive motor insurance,” he says. Each time the motor vehicle license is renewed the driver has to produce a valid original insurance certificate not older than 30 days and valid for 13 months! The UAE uses the same administrative system to ensure drivers produce road-worthy certificates every three years – and motor vehicle owners must replace tyres, regardless of mileage, to pass this roadworthy!
Another reader told us how things work in Italy. In Italy you have to arrange third party insurance as a minimum when you purchase a motor vehicle. You can then opt to upgrade to third party fire and theft or full comprehensive insurance with your insurer. The insurer issues an original certificate of insurance, valid for one year only, which must be kept in the car at all times. A sticker is placed on the windscreen in a similar way to the vehicle license disc currently displayed in South Africa. Italy doesn’t allow monthly insurance payments at all!
The best way to collect third party payments
How should third party insurance be implemented and collected in South Africa? Adding another ‘tax’ to the fuel levy, for example, would be difficult to control, lead to wastage, abuse and corruption and pass the cost on to public who don’t necessarily own vehicles. Instead the ‘burden’ in the third party insurance case must shift to the consumer. One solution would be to introduce legislation that forces the consumer to purchase annual third party insurance and display proof on their windshield.
There have been complaints about the cost of such a solution, with the minister of transport suggesting third party insurance would have to consider the financial status of all citizens. FAnews Online readers dismissed his sentiments with contempt. The argument of affordability shouldn’t absolve a motor vehicle owner from insurance responsibility. If you have enough money to buy a car – the argument goes – then you should be able to afford a single annual premium for insurance. A reader offered this no-nonsense advice: “Insurance must be considered one of the expenses associated with owning and driving a car on South African roads.” There should be no excuse for driving an uninsured, unlicensed or un-roadworthy vehicle.
Another concern was that third party insurance at the vehicle licensing stage would lead to full comprehensive insured motorists paying a second insurance. South Africa should compromise as follows: A tamper-proof ‘insurance’ disk (with security features) should be issued by the vehicle licensing authority as proof of motor vehicle insurance at the same time as the vehicle’s license disk is renewed. This ‘insurance’ disk would be issued only if: The motor vehicle owner provided documentary proof the vehicle in question is comprehensively insured OR upon the vehicle owner paying a ‘single premium’ for one year’s third party insurance.
Editor’s thoughts: It shouldn’t take rocket science to design a compulsory third party insurance system. The challenge is in implementation. Given government’s rather lacklustre performance at vehicle licensing departments – and the appalling ‘on again / off again’ AARTO system – there is plenty of cause for concern. Do you think government is capable of implementing and administering a mandatory third party insurance system? Add your comment below, or send it to [email protected]
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